The US dollar regained its footing in the Asian session as yields rose

TOKYO ( – The dollar was firmer in Asia on Wednesday afternoon, after moving up and down due to the volatility of the bond market in the last session, as investors looked to US economic indicators, Federal Reserve comments and corporate earnings for clues on the path of interest rates.

The dollar index, which measures greenbacks against six other major currencies, it was hoisted 0.09 percent to 101.81 in Asian trading, following a 0.36 percent decline on Tuesday (18/4) that reversed a 0.54 percent rally from the previous session. On Friday (14/4), the index fell to a one-year low of 100.78.

The yield on the two-year US Treasury, which is highly sensitive to Fed expectations, hit a nearly one-month high of 4.231 percent overnight and remained high in Tokyo trade Wednesday.

The dollar-yen pair, which tends to track US yields, added 0.19 percent to 134.35 yen per dollar, recovering from Tuesday’s 0.29 percent decline.

Fed President St. Louis James Bullard told Reuters in an interview he was leaning toward tightening an additional 75 basis points, versus market consensus for one more 25 basis point increase next month and then a potential cut of as much as two and a quarter points later this year.

By contrast, Atlanta Fed President Raphael Bostic said in an interview with CNBC that he expects just one more quarter-point increase, followed by an extended break.

“The market was pretty resigned to the 25 basis point hike at the May meeting, so more ebb and flow of expectations about a rate cut this year is causing volatility in the US bond market,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank.

“It is the volatility in the bond market that drives the dollar, not the other way around.”

The dollar’s decline on Tuesday was also driven by reduced demand for its safety after what Attrill called the day’s “blockbuster” Chinese economic growth data, which in turn supported Australia’s risk-sensitive currency.

The Aussie was nearly flat at $0.6730 on Wednesday, following a 0.41 percent rally in the previous session.

The euro eased slightly to $1.0967 after rising 0.42 percent on Tuesday (18/4). Sterling touched $1.2420 after rising 0.38 percent the previous day.

The dollar index last year peaked in 16 months by hitting a two-decade high of 114.78 in late September, which was followed by a sharp and steady decline through early February.

The index then bounced as the banking crisis stoked fears of a global recession, hitting a three-month peak in early March.

However, bank profits of the last few days have proved strong overall, and bond yields have recovered strongly from multi-month lows hit last month.

“The main driving force used to support the broad US dollar – namely, weakening global growth – has faded, if not neutralized,” HSBC analysts wrote in a client note.

“The decline is likely to be bigger than some people expect.”

Translator: Apep Suhendar
Editor: Guido Merung


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