Greenback holds near two-week lows

London

THE US dollar slipped and hovered near two-week lows on Wednesday, after US bond yields stabilised, while market participants waited for the Federal Reserve's meeting minutes later in the session to help determine the currency's future path.

The previous quarter saw a spike in US Treasury yields and the dollar's strongest rally in years, on rising expectations that accelerating US economic growth and inflation could force the Fed to abandon its pledge to keep interest rates near zero until 2024.

The International Monetary Fund said on Tuesday that unprecedented public spending to fight the pandemic would push global growth to 6 per cent this year.

But the bond market has stabilised this week, with the 10-year US Treasury yield at 1.6579 per cent, down from its peak of 1.776 per cent at the end of March.

"We have seen USD supported by rising bond yields most of Q1," said Joe Tuckey, FX analyst at Argentex. "Now that Q2 has begun, yields are coming off slightly which has softened the dollar in the last couple of days."

At 11am GMT, the US dollar was down 0.1 per cent on the day at 92.21 against a basket of currencies - close to a two-week low, having fallen from a high of 93.439 that it hit on March 30.

"I suspect that we are dealing with broad-based profit-taking on market USD longs," said Valentin Marinov, head of G-10 FX research at Credit Agricole.

He said that in the near term, US Treasury yields and global risk appetite would drive the currency market. As long as yields stay within recent ranges, risk appetite could stay strong, keeping the greenback on the back foot and supporting riskier currencies, he added.

Market participants were awaiting the release of Fed meeting minutes later in the session for hints about the policymakers' views on rising yields.

"Investors will be scanning the minutes in search of any discomfort among policymakers about rising inflation prospects and in parallel any hint that the discussion is migrating towards defining a timeline for tapering asset purchases," ING strategists wrote in a note. "Any (even mild) hawkish signal surely bears the risk of hitting Treasuries, and providing some support to the dollar."

US money markets are pricing in a 25 basis point hike in December 2022.

Euro-dollar was up 0.1 per cent at US$1.18905. REUTERS