The U.S. dollar tumbled down on Tuesday after skyrocketing to 3-1/2 month highs recently. U.S. Treasury yields stabilized, causing the safe-haven greenback to decline. On the other hand, riskier currencies such as Australian and New Zealand dollars and the British pound surged forward.
The dollar index fell by 0.2% at 92.181 against a basket of other currencies in early trading in London. Before that, it hit a 3-1/2 month high of 92.506 during Asian trading hours.
Investors fear that yields will rise further this week. However, U.S. 10-year Treasury yields plummeted down as low as 1.5350% for a second consecutive day.
ING strategists noted that, most likely, the market stays stable during the day ahead of the U.S. inflation release and the UST auctions tomorrow. Those two are the near-term risks for FX markets, considering the risk of a further sell-off and the possible negative spillover into USTs.
The analysts also added that near term, the currencies depending on oil exporters should gain over low yielders in the G10 forex space. The rising oil price would provide an offsetting factor to the global risk environment.
How are the riskier currencies trading now?
The Australian dollar soared by 0.7% to $0.7695 on Tuesday. The New Zealand dollar also jumped by 0.5% to $0.7149.
Meanwhile, the oil-linked Norwegian crown surged forward by 0.6% to 8.4898 per dollar today. Oil prices have rallied in recent days due to expectations of a recovery in the global economy. There is also the possibility of a drawdown in crude oil inventories in the U.S., which is the biggest fuel consumer worldwide. After an attack on a Saudi Arabian oil export facility, they shot up on Monday.
In Europe, the euro climbed up by 0.3% to $1.18845. The sterling also added 0.5% to $1.3886. Both currencies soared after the greenback took a breather.
However, despite the current downtrend, the dollar index has still firmed more than 2% year-to-date. Accommodative monetary policy and upbeat macroeconomic data have lifted bond yields, hitting highly valued U.S. technology stocks.
Most analysts forecasted bearish tidings for the dollar at the start of this year. However, the currency managed to increase despite that. BCA Research’s analysts stated that the greenback was very much oversold, with sentiment close to a bearish nadir and net speculative positioning heavily short. Considering all that, they expected a rebalancing in positioning.
Furthermore, the rally in U.S. interest rates has increased the dollar demand, particularly compared to currencies such as the yen and the euro. Economic momentum has also been improving in the United States of late, further encouraging the traders.