Dollar near one-month low as strong debt sale weighs on U.S. yields

Dollar near one-month low as strong debt sale weighs on U.S. yields

LONDON (Reuters) – The dollar held near a one-month low on Wednesday as strong demand at a U.S. bond auction fuelled a widespread drop in Treasury yields, reducing the interest rate advantage the greenback held over other major currencies.

In early London trading, the dollar edged 0.1% lower versus a basket of its rivals to 91.75, its lowest level since March. 19.

After peaking at a 4-1/2 month high of 93.43 at the end of March, the greenback has since declined nearly 2% as Treasury yields eased.

While rate differentials between U.S. and German benchmark 10-year yields have narrowed slightly to 193 bps from more than 200 bps at the start of the month, they remain considerably higher than 150 bps seen at the start of the year.

The dollar’s decline was further fuelled by a pick up in inflationary pressures which showed U.S. consumer prices rose by the most in more than 8-1/2 years in March at 2.6%.

Higher inflation failed to translate into expectations of an acceleration in policy tightening. December 2022 futures contracts are signalling a slower rise in implied interest rates, reflecting the Fed’s resolve to keep policy on hold.

“The Fed’s continued commitment to loose monetary policy remains a key assumption behind our view that it is still too premature to expect a sustained US dollar rally at the current juncture,” MUFG strategists said.

The dollar was particularly vulnerable against the yen and the euro, with the single currency threatening to rise above the psychologically important level of $1.20 for the first time since early March.

Elsewhere, the New Zealand dollar rose 0.4% to $0.7086 after the country’s central bank held its official interest rate and asset purchase programme steady, as expected.

The Singapore dollar rose 0.25% to S$1.3376 after the Monetary Authority of Singapore (MAS) left its exchange-rate policy settings unchanged.

In cryptocurrencies, bitcoin hit a record high of $64,895 ahead of the listing of cryptocurrency platform Coinbase on Nasdaq later in the day.

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