The rising yields of the US Treasury are raising the dollar, encouraging opponents to face consensus forecasts for a prolonged fall in the world reserve currency.
The DXY US Dollar ICE Index,
which measures the currency with a basket of six main rivals, rose 0.3% to 92,268 on Monday, trading at its highest level since Nov. 24, according to FactSet. The meter has risen 1.5% so far in March and 2.6% a year after falling to a 22-month low in January.
“The song remains the same, at least in the U.S., with U.S. yields continuing to grow and dragging on the U.S. dollar,” Jefferies global head of foreign exchange Brad Bechtel wrote in a note Monday to clients.
The performance of the 10-year Treasury note TMUBMUSD10Y,
rose around 4 points to trade above 1.60% on Monday. Bond yields and prices are moving in opposite directions. The movement continued with a significant backup of yields, which has been blamed for a violent rotation of high-growth stocks towards more cyclical and value-oriented names.
This rotation remained on display Monday, with the Dow Jones Industrial Average DJIA,
increasing more than 600 points, or 2%, in its maximum session to trade on an intraday record, while the Nasdaq Composite COMP, which has a lot of technology,
fell 0.6%.
Higher U.S. yields relative to foreign bonds are considered a key element in supporting the dollar because they attract demand for U.S. assets.
Most analysts, however, have sought to keep the dollar under pressure after a sharp shift last year, arguing a global economic recovery and the Federal Reserve’s commitment to leave the economy warm before retreating. in the monetary stimulus he would see the dollar fall against major rivals.
See also: Complacent stock market investors underestimate the danger of a sharp fall in the US dollar, warns veteran currency watcher
Opposite dollar traders have argued that the United States is on the verge of overtaking other major economies as the world economy recovers, pushing the Fed to withdraw monetary stimulus faster than other major central banks.
Expectations for this scenario are starting to grow, Bank of America analyst Ben Randol said in a note Monday.
“A more pronounced and closer path of normalization of the Fed in relation to the world’s central banks is beginning to support the US dollar, according to our analysis. This evidence supports our USD bullish thesis based on this year’s fundamental growth and decoupling of interest rates, especially as [currency] sensitivity is asymmetrically poised to increase in the coming months, “he wrote.” We are still opposed. [dollar] and we hope that this process will continue to develop. “
Dollar bears argued that rising yields are unlikely to hold, leaving the currency down in the face of major rivals once the global bond market regains equilibrium.
In fact, there is less attention to the attractiveness of US yields and the dollar, Steve Barrow, head of G-10 strategy at Standard Bank, argued in a note on Monday. Earnings have been “compromised” by rising inflation expectations, which have seen real U.S. yields, or inflation-adjusted, move less than nominal yields, he said.
In addition, he expects that the increase in the nominal yield of the Treasury to ten years will “blow” in the region of 2%. Barrow cited a list of other factors that could keep the dollar under control, including the Fed’s reluctance to alter forecasts to keep policy rates anchored at current levels for years to come, as well as expectations of an overheating of the US economy that will lead to a rapid deterioration of the US trade balance.
For now, the dollar can have the maximum advantage when it comes to the technical picture after the DXY, in reference to the ICE Dollar Index marker, which posted a weekly close on Friday above its 100-day moving average. days. This sets a potential test for the 200-day moving average, which stands at 92.95, Bechtel said.
The EURUSD euro,
which has, by far, the DXY’s biggest weight, fell below its 100-day AM, with support at 200 days, at $ 1.1825, in view of dollar supporters. The euro fell 0.5% to $ 1,1856 in recent trading.
The 200-day MA “will be HUGE for the model / momentum fund community and I imagine we’ll see some battle form around those levels,” he said. “It is unlikely that we will go up and move forward, we will see in the short term [dollar] profit winners and long-term players defend these levels. Only if we take a successful look will we really see the tide turn into a short-term sentiment. ”