US dollar advances on investor caution ahead of Fed meeting

NEW YORK (Reuters) – The dollar gained for a third consecutive session on Monday, as traders reduced their bearish bets on the greenback to four-month lows amid the recent rise in U.S. Treasury yields and became cautious prior to Federal Reserve policy meeting. week.

Besides the Fed, the Bank of England and the Bank of Japan are also set to meet this week and all three are likely to set the tone for the direction global interest rates will take.

Yields on US Treasuries were lower on Monday, however, in line with Europe, ahead of these central bank rallies. Benchmark 10-year Treasury yields traded as high as 1.639% on Monday, near Friday’s high of 1.642%, a level last seen in February 2020. The latest yield was 1.61% .

“The market is waiting for the FOMC this week. Much of this involves the question of whether the Fed is going to talk about the yield curve or whether it is going to face rising yields in the long run, ”said Amo Sahota, executive director of Klarity FX in San Francisco.

The greenback’s gains have been more pronounced against low-yielding currencies such as the Euro and British Pound, while high-yielding currencies like the Australian dollar have performed relatively better.

Rising US yields have pushed the greenback up 2% so far this year on widening interest rate spreads against other major bond markets. The dollar fell more than 4% in the last quarter of 2020.

In afternoon trading, the dollar index, which tracks the US currency against six major peers, rose 0.1% to 91.799. It peaked at 92.51 at the end of November 2020 last week.

The US currency was supported by lower bets on its decline as speculators reduced net short positions to their lowest since mid-November of the week ended March 9.

Rising bond yields will continue to focus minds this week ahead of a Fed meeting in which some analysts expect policymakers to put a bullish tone on the US economy.

While the Fed is expected to try to calm bond markets – yields have risen by about 60 basis points since the last Fed meeting – the consensus is that Fed chief, Jerome Powell, will not change his policy.

“If the Fed does not address the issue of yields, then the trend toward a stronger dollar will start to gain a foothold, which is different from what most people expected at the start of the year,” Sahota said of Klarity.

The dollar rose 0.1% against the yen to 109.15, after rising earlier to 109.36 yen, the highest since June 2020.

Chart: JPY positions,

The euro weakened 0.2% to $ 1.1926 after rising last week for the first time in three weeks, with the latest data showing that hedge funds have reduced their net positions in euros.

The Australian dollar – widely regarded as a liquid indicator of risk appetite – slipped 0.1% to US $ 0.7750, extending Friday’s loss.

Bitcoin, meanwhile, fell more than 5% after hitting a record high of $ 61,781.83 over the weekend. It was last at $ 56,046.