Dollar Up, Boosted Back Above Support Levels as U.S. Yields Climb

The dollar was up on Wednesday morning in Asia, with rising U.S. yields pushing it back above support levels that have not been hit in the past few months. Investors also continue to anticipate a hike in U.S. interest rates.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.01% to 95.737 by 10:17 PM ET (3:17 AM GMT).

The USD/JPY pair inched up 0.02% to 114.63. The moves in the U.S. bond market unsettled equity investors and boosted the safe-haven yen.

The AUD/USD pair inched up 0.06% to 0.7187. Australian data showed that the Westpac Consumer Sentiment index contracted 2% in January, compared to the 1% contraction from the previous month.

The NZD/USD pair edged up 0.17% to 0.6781, with New Zealand’s electronic card retail sales growing 0.4% month-on-month and 4.2% year-on-year in December 2021.

The USD/CNY pair was steady at 6.3531. The GBP/USD pair inched up 0.03% to 1.3598, with the U.K. due to release the latest consumer and producer price index figures later in the day.

Two-year Treasury yields climbed 15 basis points over two sessions to cross the 1% mark and benchmark 10-year yields were at a two-year high of 1.8842%.

With the U.S. Federal Reserve due to hand down its policy decision in the following week, investors are nervous about further hawkish moves.

“A lot of Fed officials left us with hawkish impressions right before going quiet ahead of the meeting,” NatWest (LON:NWG) markets strategist Jan Nevrusi told Reuters.

“After Tuesday’s price action, there is slightly more than one hike priced in for the March meeting, and going into next week, I would imagine it oscillates within the lower end of the 25-50 basis point range.”

The Fed is widely expected to hike interest rates three more times within 2022. The dollar’s gains could continue if investors start expecting interest rates to rise not just faster but further as well.

“We expect the U.S. rate rethink, and this latest shift higher in yields reflects a push higher in the implied terminal rate, rather than just a faster pace of increases initially, to support the dollar in the first half of the year,” Societe Generale (OTC:SCGLY) strategist Kit Juckes told Reuters.

Across the Atlantic, U.S.-Russia tensions over Ukraine are also on investors’ radars. U.S. Secretary of State Antony Blinken will meet Russian foreign minister Sergey Lavrov in Geneva on Friday.