TOKYO (JAPAN) – The US dollar remained broadly weaker on Wednesday as Treasury yields witness a further retreat, by bringing some respite to global markets and rekindling demand for riskier assets.
Commodity-linked currencies, which includes the Australian dollar and the Norwegian krone was seen clinging onto sizeable two-day advances.
The lower US bond yields also had an impact on some of the dollar’s allure among fellow low-yielding currencies, with the yen and Swiss franc deviating from multi-month lows overnight.
Fiscal stimulus has spiralled market expectations for a speedy recovery, with President Joe Biden likely to approve a $1.9 trillion spending package.
There was little change in the Asian session on early Wednesday in the index of the dollar against six of its major peers, after seeing a dip back from a nearly one-month high overnight.
The Aussie climbed slightly to $0.7820, with gains of about 0.7% the previous two days, after data indicate that the Australian economy grew much faster surpassing expectations in the fourth quarter.
The krone saw trade mostly at 8.4684 per dollar after progressing about 1% in each of the past two sessions.
Shinichiro Kadota, senior currency strategist at Barclays Capital in Tokyo, said, “Risk sentiment dynamics are the key driver of currencies in general right now.”
“Equity market reaction will be one of the key determinants of the impact of this move in global rates on FX markets.” As it affected the momentum, with regard to volatility, which could be brief if an improving US economy brings back bond selling, with monitored monthly payroll figures due on Friday.
US Federal Reserve Governor Lael Brainard stood with his recent dovish rhetoric overnight, by adding that there is still a lot to be down so as to cover on jobs and inflation. She also said she is “paying close attention” to bond market developments, where “the speed of the moves caught my eye.”
Meanwhile, European Central Bank board member Fabio Panetta said the bloc’s monetary authority should expand bond purchases or even increase the quota earmarked for them if needed to keep yields down. The euro was little changed at $1.20880 after rising more than 0.3% in the previous session, when it rebounded from an almost one-month low below $1.20.
The dollar added 0.2% to 106.875 yen, consolidating after a rebound from the cusp of 107 overnight, which has not been witnessed since August.
The US currency rose 0.1% to 0.91530 francs, after climbing as high as 0.9193 for the first time since November.
TD Securities closed out its model long USD-CHF position, by making profit after striking 0.90 francs, ahead of its 0.9250 target.
“We take profit just shy of our target out of an abundance of caution,” TD strategists wrote in a note.
“Given the carnage in the US rates space recently, we think the market might be disproportionately sensitive at this time, causing some temporary positioning recalibration.”
In cryptocurrencies, bitcoin consolidated around $49,000, from a sharp retreat after reaching a record high of $58,354.14 on February 21.