The United States of America dollar soared on Friday, April 27 and is on track to post its best weekly performance in more than 1-1/2 years as a spike in U.S. Treasury yields prompted some investors to unwind some short bets against the dollar, especially against some emerging market currencies.i
Against a basket of rivals, the greenback jumped by 0.2 percent to 91.71, its highest level since Jan 12. For the week, it has gained more than 1.5 percent and is on track to post its best weekly performance since late November 2016.
The dollar changed hands at 109.17 yen, having risen to a 2-1/2-month high of 109.49 yen earlier in the week. So far this week, it has gained 1.4 percent.
While the dollar has ignored yield differentials for more than a year with investors preferring to give greater weight to the momentum of economic recovery in other major economies, notably Europe, this week’s spike of ten-year U.S. Treasury yields above the 3 percent mark forced investors to acknowledge the widening yield differentials favoring the greenback.
Benchmark ten-year U.S. Treasury yields surged past the 3 percent mark earlier this week before peaking out at 3.03 percent on Wednesday. Short-dated U.S. yields hit a more than a decade high of 2.51 percent on Wednesday.
“We think those concerns are unfounded and the U.S. central bank is on track for three if not four rate hikes in 20218,” said Nish Parekh, a senior trader with Silicon Valley Bank based in London.
Speculators’ net dollar short position in currency futures in Chicago, a closely-watched indicator on market positioning, had hit a 6-1/2-year high, suggesting some short-covering will be due.
In Japan, the Japanese yen was little changed after the central bank’s policy decision at which it kept settings unchanged.
In the BOJ’s first policy meeting under the new leadership, the central bank dropped a reference to inflation reaching its two percent goal in about two years, however, few see policy implications from this shift in communication.
