Dollar Plunges as US Treasury Yields Drop

On Thursday, the greenback pulled back after increasing to one month peaks in the wake of upbeat U.S. economic data, with demand for the dollar cooling as Treasury yields came off their peaks.



On Thursday, the greenback pulled back after increasing to one month peaks in the wake of upbeat U.S. economic data, with demand for the dollar cooling as Treasury yields came off their peaks.

Better than expected U.S. inflation and retail sales statistic had supported expectations of an early rate hike by the Fed Reserve, sending the dollar index to 101.76 (DXY) on Wednesday, a peak unnoticed since Jan. 12. It has since retreated to 100.92 in the Asia session on Thursday, 10:59PM ET.

The greenback also came off from a 2-1/2-week peak of 114.95 marked on Wednesday against the yen, touching a low of 113.73. It was last down 0.3% at 113.84 yen.

“The dollar is struggling as U.S. Treasury yields retreated from highs,” said Junya Tanase, chief currency strategist at JPMorgan Chase (NYSE:JPM) Bank in Tokyo.

On Thursday, U.S. benchmark 10-year Treasury note yields fell to 2.484% (US10YT=RR), after  increasing to a three-week peak of 2.524% on Wednesday following the upbeat U.S. data.

Data on Wednesday indicated U.S. consumer prices recorded their biggest increase  in approximately four years, increasing 0.6% in January. Retail sales also outpaced expectations, increasing 0.4% the previous  month compared to the analysts’ poll of 0.1 percent.

However, some analysts also noted that the statistics may not be as strong as it looks, while industrial production and a measure on home builder sentiment took an unexpected spills.

“Retail sales seemed to have been boosted by higher prices rather than an increase in the real consumption,” said Shin Kadota, senior forex strategist at Barclays (LON: BARC).

“Investors also took profits as the dollar was trading high this week,” added Kadota.

Up until Tuesday, the greenback index had enjoyed a 10-session winning streak.

On Tuesday, Yellen indicated more rate hikes were on the way as the employment market has improved and inflation has shown signs of nearing the Fed’s two percent objective.

Fed Chair Janet Yellen offered no further insight on the scheduling of the central bank’s next rate hike in her second day of economic testimony before Congress on Wednesday.

Markets will get another opportunity to check the U.S. economic pulse from another set of data, including housing starts, building permits and the Business Outlook Survey by Reserve Bank of Philadelphia.

The euro inched up 0.15% at $1.0614, recovering from a five-week low of $1.052 touched on Wednesday.

On Wednesday, the U.S. dollar increased against its Canadian counterpart, as strong U.S. data improved optimism over the economy and added to expectations for a U.S. rate hike in the near future.

During early U.S. trade USD/CAD hit 1.3115, the highest since Monday, the pair subsequently consolidated at 1.3104, gaining 0.23%, 10:59PM ET.

The pair was expected to find support at 1.3022, Tuesday’s low and a one-week trough and resistance at 1.3161, the high of February 10.

Somewhere else, the Australian dollar hovered near a three-month peak  following a slightly better than expected reading in the country’s January jobs data.

The Australian dollar last traded at $0.7709 after reaching $0.7732, its highest since Nov. 10.

Sterling last stood at $1.2460, edging up from a one-week low of $1.2384 touched on Wednesday, knocked by slowing wage progress in the 4th quarter, not a good  news for British consumers facing a surge in inflation in the months onward.

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