Dollar climbs to 2-week high, boosted by rising Treasury yields, pound drop

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The U.S. dollar headed higher against most rival currencies on Friday, helped by rising U.S. Treasury yields.

Also helping the buck, the British pound continued to slide after hints from Bank of England Gov. Mark Carney that the U.K. central bank may hold off on raising interest rates next month.

What are currencies doing?

The ICE U.S. Dollar Index












DXY, +0.40%










 rose 0.5% to 90.331, trading around its highest level in two weeks, according to FactSet data. For the week, the gauge was set for a 0.5% gain, which would break a two-week losing run. The broader WSJ U.S. Dollar Index












BUXX, +0.46%










 was up 0.4% at 84.30.

The pound












GBPUSD, -0.5894%










 dropped to $1.4014, down from $1.4082 late Thursday in New York, testing a two-week low. Sterling earlier this week reached $1.4377, its highest level since the U.K.’s Brexit vote in June 2016, but was sent sharply lower late Thursday after Carney’s comments. The U.K. currency is now on track for a 1.3% weekly loss.

Read: Here’s why the pound got whipped this week—and why it may bounce back to $1.44

The euro












EURUSD, -0.4536%










 dropped to $1.2285, compared with $1.2345 on Thursday.

The Japanese yen












USDJPY, +0.26%










 also skidded, with the buck strengthening to ¥107.61, off previous highs, but up from ¥107.37 on Thursday.

Against the Swiss franc












USDCHF, +0.3913%










the buck climbed to 0.9753, up from 0.9712 francs late Thursday in New York. The euro












EURCHF, -0.0917%










 climbed past the psychologically important level of 1.20 against Switzerland’s currency earlier in the session, before the pair reversed, leading the euro to buy 1.1981, down 0.1%.

Read: How geopolitics have helped drive this haven currency to a 3-year low

Down under, currencies weakened against their U.S. rival, with both the Australian












AUDUSD, -0.7633%










 and New Zealand dollar












NZDUSD, -0.8391%










 slipping close to 1%. The Aussie fetched $0.7669, down from $0.7730, while the kiwi bought $0.7203 versus $0.727 late Thursday in New York.

What is driving the market?

The U.S. dollar began its advance on Thursday, as U.S. government yields rose, pushing the 10-year note












TMUBMUSD10Y, +1.67%










 to 2.956%, its highest level since January 2014.

Read: The U.S. 10-year government bond yield just touched its highest level in about 4 years

The yield gains came as inflation expectations increased, following a rally in oil and metals prices this week. Higher inflation could put more pressure on the Federal Reserve to speed up the pace of interest rate increases, which theoretically would be supportive for the dollar.

Carney, in a BBC interview late Thursday, highlighted a recent run of disappointing economic data and indicated a BOE interest rate increase in May is not a foregone conclusion. Market expectations for a rate rise next month dropped to below 50% after his comments, down from above 80% earlier in the week, according to Bloomberg.

What are strategists saying?

“Earnings growth remains robust while geopolitical and trade tensions de-escalate. This keeps our tactical dollar rally against much of the developed market currencies space in place, particularly against the euro, yen and franc,” wrote Morgan Stanley strategists led by Hans W. Redeker.

“With the inflationary implications of commodity prices gaining strongly in recent sessions and geopolitical risk fading (for now) there has been a setup for global bond yields to push strongly higher,” said Richard Perry, market analyst at Hantec Markets, in a note.

“How long this push higher in Treasury yields last for could determine the near-term strength of the dollar,” he said.



Source : MTV