Dollar reverses losses, shows modest gain following 10-year TIPS auction
The dollar fluctuated but remained rangebound on Thursday as this week’s upward trajectory of U.S. Treasury yields took a breather.
While the dollar initially edged lower following the release of disappointing economic data, the greenback reversed its losses after benchmark Treasury yields partially recovered in the wake of a 10-year TIPS auction which showed soft foreign demand for the notes.
Against a basket of world currencies, the dollar was last up 0.13%.
U.S. 10-year note yields were at 1.8325%, off their two-year high of 1.902% reached on Wednesday.
“While yields are softer, they’re still at elevated levels, and the dollar continues to draw support ahead of next week’s Fed meeting,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. “We’ve seen ebbs and flows this month, but the underlying fundamentals remain bullish for the dollar on the view that the Fed is going to adopt a more hawkish policy stance going forward.”
The benchmark yield’s advance has been driven by market expectations that the U.S. Federal reserve will tighten monetary policy at a faster pace than previously anticipated. Fed funds futures have fully priced in a rate hike in March and a total of four in 2022.
The central bank’s Federal Open Markets Committee (FOMC) is expected to convene its two-day monetary policy meeting on Tuesday, at the conclusion of which market participants will closely parse the committee’s statement regarding the tightening timeline.
“Currencies are sticking to the range, waiting on central banks next week,” Manimbo said, adding that “market expectations have arguably become overly aggressive with respect to hawkish Fed policy.”
The Euro was last at $1.1313, below an earlier high of $1.1369.
The pound was 0.03% higher at $1.3615 and the yen was nominally lower at 114.14 per dollar.
The Aussie firmed 0.41% to $0.7241, extending advances from the previous day, and the Canadian dollar reversed earlier gains, with one U.S. dollar worth C$1.2474.
The Norwegian crown fell after the central bank voted to keep interest rates on hold at 0.5% and said it was on track for an interest rate hike in March.
The crown was last down 0.16% against the dollar.
Among cryptocurrencies, bitcoin was most recently up 3.0% at $42,916, while smaller rival ether gained 4.3% to $3,215.