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Dollar rises as risk rally pauses


The dollar was broadly strong, enjoying some respite after having dropped 2% last month and clocking its first yearly loss since 2020

The dollar rose broadly on Wednesday and stood near a two-week high against its major rivals, underpinned by a confluence of factors such as higher U.S. Treasury yields and a cautious turn in risk sentiment that weighed on Wall Street.

Trading was thinned in Asia with Japan out on a holiday, and with investors still returning from an extended New Year break, currencies traded mostly sideways in early deals.

However, the New Zealand dollar, often used as a proxy for risk appetite, dropped to a two-week low of $0.62485.

The Australian dollar likewise reached a two-week low of $0.6756.

The U.S. currency was broadly strong, enjoying some respite after having dropped 2% last month and clocking its first yearly loss since 2020.

A surge in risk appetite at the end of last year – triggered by a dovish tilt in the Federal Reserve’s December policy meeting which further fuelled bets for U.S. rate cuts in 2024, had toppled the dollar and triggered a rally in Treasuries and stocks.

That, however, failed to carry on into the New Year, with a bout of risk aversion causing the S&P 500 and Nasdaq Composite to end their first trading session of 2024 down, dragged down by big tech names.

We have just seen quite a significant reversal in risk sentiment in the past 24 hours, said Ray Attrill, head of FX strategy at National Australia Bank. Higher U.S. yields, weaker U.S. stocks equals stronger dollar. I think that is the simple story.

The kiwi dollar, which has been one of the more risk-sensitive currencies, has sort of underperformed compared to most other currencies as well, said Attrill.

A broadly stronger dollar also weighed on the euro and sterling, which had, on Tuesday, clocked their worst daily performance in months.

The euro was last at $1.0949 after having shed 0.95% on Tuesday, its biggest daily decline since July last year.

Sterling similarly wobbled near a three-week low and traded at $1.2630, having slipped 0.87% in the earlier session, its sharpest daily decline in nearly three months.

The dollar index stayed near a two-week high and was last at 102.15 after having climbed 0.86% on Tuesday, which marked its best daily performance since March 2023.

The greenback was underpinned by a rebound in U.S. Treasury yields, which saw the benchmark 10-year yield reaching a more than two-week high in the earlier session.

Cash trading of Treasuries in Asia was closed on Wednesday given the holiday in Japan.

Elsewhere, the yen was little changed at 141.98 per dollar, after dropping around 0.8% in the prior session.

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