Firmer US yields push dollar higher for second day

London

THE US dollar rose for a second consecutive day on Tuesday, moving away from a near one-month low hit last week, as firming US Treasury yields prompted investors to cut short dollar positions against the euro before a central bank meeting this week.

The greenback plunged to its lowest levels since early August on Sept 3 after a surprisingly soft US payrolls report prompted analysts to raise bets that the Federal Reserve will not unwind its stimulus plans in the coming months.

But the dollar scored some cautious gains against rivals in the past two sessions as rising US yields undercut bearish sentiment. Against a basket of its rivals, the greenback rose 0.1 per cent to 92.25. On Sept 3, it hit its lowest since Aug 4.

"The 10-year yield is trading near 1.36 per cent and is on the way towards testing the July 14 high near 1.42 per cent and this has helped the dollar index to recoup its post-NFP (non-farm payrolls) losses and then some," Brown Brothers Harriman strategists said in a daily note.

US 10-year yields which were around 1.299 per cent before Sept 3's data release, stand now at 1.365 per cent, four basis points higher on the day and the highest since Aug 26.

While trading ranges were narrow because of Sept 6's US holiday, broader sentiment was more upbeat as Chinese economic data boosted sentiment, with the euro and the Canadian dollar retracing most of their losses versus the US currency.

The euro changed hands at US$1.1884, slightly below Sept 3's one-month peak of US$1.1909, but still well-supported ahead of the European Central Bank (ECB)'s policy meeting on Thursday.

The ECB is seen debating a cut in stimulus with analysts expecting purchases under the ECB's pandemic emergency purchase programme (PEPP) falling possibly as low as 60 billion euros a month from the current 80 billion.

The Australian dollar was the only currency that was relatively volatile in Asian trading after the central bank stuck with plans to taper its bond buying but said it would extend the timeline as the economy struggles with coronavirus lockdowns.

Broader currency market swings were subdued with a gauge measuring market volatility holding near its lowest levels this year at 5.7 per cent.

Crytocurrencies provided some spark in the London session with Bitcoin and Ether weakening 4 per cent and 6 per cent respectively. REUTERS