US Dollar Index firm ahead of Fed Chair by higher US yields

TOKYO (Reuters) – Daily FX Signals via Telegram – The dollar held firm against major currencies on Thursday, and gained on more volatile ones, underpinned as the U.S. 10 year yield neared the 5% level and ahead of closely-watched remarks by Federal Reserve chair Jerome Powell.

Daily FX Signals - How to Trade Wedge Chart PatternsThe dollar index, which tracks the unit against six main peers, was at 106.5 steady on the day, having risen 0.33% the day before.

Its moves were more dramatic against currencies that are particularly exposed to swings in global growth expectations, with the Australian dollar and New Zealand dollars each down 0.6%, with the kiwi hitting its lowest level in a year of $0.5815.

The pound, also traditionally more vulnerable to global swings, was down 0.2% at $1.2118 while the euro was steady at $1.05374. Neither was far from multi-month lows hit in early October.

“Over the last day or so, the spike higher in yields has hurt risk sentiment in markets, we saw a sell off overnight in global equity markets and that risk-off trading is driving FX markets particularly in the high beta commodity currencies,” Lee Hardman, senior currency analyst at MUFG, said.

“Other majors have been more stable, even as yields continue to move higher. Maybe there is some caution ahead of Powell later in the day.”

U.S. yields at long and short-dated tenors hit 16-year highs on Thursday, and selling pushed the 10-year yield to almost 5%, a psychologically significant level – with European and Japanese bonds also under pressure. [US/] [GB/] [JP/] [GVD/EUR]

Powell will participate in a discussion on the economic outlook at the Economic Club of New York at 1600 GMT, a few days before the traditional quiet period ahead of the rate-setting Federal Open Market Committee’s meeting on Oct. 31-Nov. 1. begins.

Prior to his remarks, policy-makers appear to be agreement to hold interest rates unchanged at their next meeting, but uncertainty about what happens afterwards is high.

Other policy-makers also face dilemmas. Japan is struggling with a weak yen, and Japan’s top currency diplomat said on Thursday that, although not acting in response to excessive currency moves could hurt the vulnerable, it would be better if they did not have to intervene.

The dollar was last at 149.84 yen, closing in on the psychologically significant 150 yen level that earlier this month triggered a dollar plunge, although analysts say the indications suggest Japan did not intervene.

The dollar/yen could be pushed higher depending on whether U.S. yields continue to rise at a faster pace than their Japanese peer yields, Carol Kong, currency strategist and economist at the Commonwealth Bank of Australia (OTC:CMWAY), wrote in a note.

“The implication is the risk of FX intervention by the BoJ remains high in our view,” said Kong.

The yen, a traditional safe haven, has not benefited much from risk aversion due to the war in the Middle East, unlike the Swiss franc, which has strengthened sharply.

The euro was last a touch firmer against the franc at 0.9481 though hit a one year low of 0.9449 francs the day before.

US Dollar Index firm ahead of Fed Chair by higher US yields

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US Dollar Index firm ahead of Fed Chair by higher US yields

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US Dollar Index firm ahead of Fed Chair by higher US yields