Greenback regains footing; riskier currencies retreat

London

THE US dollar regained its footing on Wednesday, clawing back some of its losses sustained overnight, as US bond yields stabilised following a drop from one-year highs.

Riskier currencies including the Australian and New Zealand dollars retreated after logging big gains on March 9. Bitcoin turned lower after earlier topping US$55,000 for the first time since Feb 22.

Against the yen, another traditional safe-haven currency, the greenback traded 0.3 per cent higher at 108.80 yen, following its retreat from a nine-month peak of 109.235.

Investors were expected to have their eye on US inflation numbers due later on Wednesday. Traders are also wary bond yields could rise further this week as the market will have to digest a US$120 billion auction of three-, 10-, and 30-year Treasuries (UST), especially after last week's soft auction and a seven-year note sale that saw a spike in yields.

"Particularly the latter (the 10-year auction today will be followed by a 30-year UST auction tomorrow) is the main risk to market sentiment today should low demand reinstate pressure on the fragile UST market," said ING strategists in a daily note.

"Equally, a good take-up could reiterate the risk-friendly mood in FX markets observed yesterday. Hence, one should get ready for a day of volatility with the FX market looking for signs of confirmation as to whether the risk rally yesterday was a short-term blip or the tentative start of a trend."

The dollar index has closely tracked a surge in Treasury yields in recent weeks, both because higher yields increase the currency's appeal and as the bond rout shook investor confidence, spurring demand for the safest assets.

The benchmark 10-year Treasury yield stabilised around 1.5630 per cent on Wednesday in European trade after a three-day drop from a one-year high of 1.6250 per cent.

The dollar index strengthened about 0.1 per cent to 92.099, after retreating from a 31/2-month high of 92.506 the previous day.

Bond investors have been selling on bets that a faster-than-expected economic rebound would spark a surge in inflation, with President Joe Biden expected to sign a US$1.9 trillion coronavirus aid package as soon as this week.

The European Central Bank meets on Thursday and one topic will dominate: what to do about rising sovereign bond yields which if left unchecked could derail efforts to get a coronavirus-hit economy back on track. REUTERS