US dollar dips as Treasury yields stall

London

THE dollar dipped on Thursday (Jan 20) as the rally in US Treasury yields paused, while the Canadian and Australian dollars gained on the back of rising commodity prices and optimism about economic growth.

The euro and sterling rose after suffering their worst days in a month on Tuesday when the dollar was lifted by a jump in US Treasury yields. But by 1100 GMT the initial gains had fizzled with investors cautious about the next move in government bond yields.

The European single currency was last at US$1.1346, up slightly on the day and below an earlier high of US$1.1369.

The pound was 0.1 per cent higher at US$1.3622 and the yen was up marginally 114.26 per dollar.

This left the dollar index, which measures the greenback against 6 major peers, at 95.563, 0.1 per cent lower on the session.

The dollar has not performed as well as expected recently, despite a dramatic rise in expectations for the US Federal Reserve to begin hiking interest rates as early as March to curb soaring inflation. US benchmark 10-year note yields were at 1.8379 per cent, off their 2-year high of 1.902 per cent reached on Wednesday.

The gains come as traders prepare for the US to tighten monetary policy at a faster pace than previously thought. Fed funds futures have fully priced in a rate hike in March and 4 in all for 2022.

Elsewhere, a combination of higher commodity prices and expectations for tighter policy supported the Aussie and the Loonie.

The Aussie firmed 0.4 per cent to US$0.7237, extending advances from the previous day, and the Canadian dollar was heading back towards the 10-week high it touched on Wednesday, with US$1 dollar worth C$1.2493.

Analysts said a strong Australian labour market reading overnight also helped the Aussie.

MUFG analyst Lee Hardman noted that the Canadian dollar has been the best performing G10 currency in 2022, attributing that to a sharp rebound in oil prices - which have hit 7-year highs - and speculation that the Bank of Canada will soon start to hike rates. REUTERS