FOREX-Dollar on the back foot as yields pause, yen recovers

FOREX-Dollar on the back foot as yields pause, yen recovers

HONG KONG Reuters -- The dollar was on the back foot after tumbling overnight, particularly against sterling and the euro, as the U.S. yields paused their march higher, giving some relief to the bruised and battered yen.

Traders were waiting for the European Central Bank meeting later in the day to see whether they were in the same hawkish mood as their global peers.

At the beginning of the week, I was saying everything followed by the ongoing grind higher in U.S. yields, equities were off, the dollar was soaring and now because of what's happening in Treasuries, everything has reversed, said Ray Atrrill global head of FX strategy at National Bank of Australia.

The 10-year Treasury yield was 2.7120%. It went up steadily earlier this month - driven by expectations for more aggressive Federal Reserve tightening to combat inflation - and reached as high as 2.836% on Tuesday ahead of U.S. inflation figures.

These were not quite as bad as some had feared, which observers said caused yields to pause.

The yield for the two year was lower at 2.3604%.

The British pound rose to $1.3131 in early trade, its highest against the dollar in a week, after jumping 0.9% on Wednesday, its biggest daily percentage gain since June 2021, partly boosted by high inflation figures.

The euro gained ground against the dollar, rising 0.54% on Wednesday, but fell against sterling.

After a 0.52% overnight drop, the dollar index, which measures the dollar against six peers, was at 99.818.

As well as the slow down in the U.S. yields, Attrill said that part of the moves could be explained by British CPI numbers coming in above expectations. The money is flirting with the idea that the Bank of England could do 50 basis points in May, although we don't expect that the market will draw a line under its quantitative easing programme in the second quarter rather than the third, said Atrrill.

They are going to be more dovish in the direction of becoming overtly less dovish. The Monetary Authority of Singapore tightened policy on Wednesday, and the Bank of Korea surprised markets with a rate hike.

The Singapore dollar was gaining 0.5% to a one week high on the dollar after the move. The Korean won was less concerned, rising by 0.16%.

The Bank of Canada and Reserve Bank of New Zealand both raised rates by 50 basis points, the largest hike for each in the past 20 years.

The dollar fell by 0.6% on Wednesday after the move, but gained ground on the kiwi as the RBNZ indicated in its post-memory statement that the peak cash rate remains unchanged due to concerns about the global outlook.

The Japanese yen managed a small recovery in U.S. trade, which continued into early Asia because of the pause in yields. It was last at 125.37 per dollar, having fallen to a 20 year low of 126.31 on Wednesday.

More than three-quarters of Japanese firms believe that the yen has declined to point of being detrimental to their business, according to a Reuters poll, with almost half of companies expecting a hit to earnings.