Dollar falls to new low as yield curve flattens

101
2
Dollar falls to new low as yield curve flattens

Dollar falls as the US yield curve flattens for cbanks in the big week.

The U.S. dollar fell to a new low on Monday, following a 1 - 1 2 year high tested on Friday, as hawkish comments over the weekend sent the U.S. yield curve to its lowest level in three months.

After the meeting last week, some investors believe that policymakers are preparing for a faster pace of rate increases this year to check inflationary pressures, as the Fed has clearly telegraphed a March interest rate hike.

A faster rate hike is also seen as a negative for future growth expectations, as investors take advantage of the recent rally in the bond markets where spreads between two and ten year U.S. Treasury yields fell below 59 bps for the first time since November in a phenomenon known as bearflattening US Though markets are unsure about the impact of the Fed's rate hike on growth and inflation, some investors have taken the latest comments from Fed's Bostic as an opportunity to take profits on the dollar's rally

Market expectations of as many as five rate hikes this year reflect the growing belief that the Fed is behind the curve in fighting upside inflation risks and will need to deliver more front-loaded tightening, Mizuho strategists said in a note.

The dollar fell 0.2 per cent to 97.02 against a basket of its rivals after rising to a mid- 2020 high of 97.44 on Friday. The dollar's 1.6 per cent increase last week was the biggest weekly rise since mid 2021, as it went up by 1.6 per cent. Long dollar positions were near their highest levels this year.

The AustralianAustralian dollar was up more than 0.5 per cent against the struggling dollar before the central bank policy meeting on Tuesday, while the Aussie was up more than 0.5 per cent at $0.7043.

The Bank of England holds a meeting on Thursday, with a poll by economists saying that there would be a second rate hike in less than two months as the BOE reverses more pandemic stimulus after inflation jumped to its highest in nearly 30 years.

The European Central Bank has a policy meeting on Thursday. While there is no policy change expected, analysts are starting to warn that approaching rate hikes from the Fed will shrink the window for action.

After a quiet weekend for the digital asset, it was holding above $37,000 in cryptocurrencies.