© Reuters. FILE PHOTO: US dollar bills are displayed in front of the stock graph that is displayed
From Hideyuki Sano
TOKYO (Reuters) – The dollar fell to a two-week low against a basket of currencies on Wednesday after US bond yields fell as traders eased aggressive expectations that the Federal Reserve will tighten policies earlier than promised becomes.
That wallowed near a two-week low of 92.314 and continued to slide from a five-month high of 93.439 set on March 31st.
The euro rebounded to a two-week high of $ 1.18785 and was most recently at $ 1.1871. The common currency rose almost one pence against the British pound overnight, trading at 85.90 pence, its biggest gain since December 10th.
The dollar changed hands at 109.77 yen, extending its retreat from a one-year high of 110.97 a week ago.
The dollar’s decline came as investors recalibrated expectations that the Federal Reserve will tighten policies earlier than proposed.
Financial markets had expected US economic growth to accelerate, and inflation could force the Fed to abandon its promise sooner as interest rate futures price in a rate hike as early as late 2022 earlier this week.
However, the U.S. Treasury Department’s five-year yields fell sharply to 0.874% after hitting a 14-month high of 0.988% on Monday.
The five-year government bond yield is now seen as a key barometer of how much confidence investors have in the Federal Reserve’s pledge not to hike rates until 2024.
Traders saw the dollar’s retreat as a correction after its rally last month. Against the yen in particular, the dollar posted its biggest monthly gain in more than four years in March, rising nearly 4%.
“Last quarter, the dollar received a boost from the Georgia Senate runoff election, the Biden government’s coronavirus bailout, and the infrastructure plan. We’re running out of big issues this quarter and the market will be looking for economic fundamentals. We expect that Dollar remains strong, but it is unlikely to rise as much as it did last quarter, “said Shinichiro Kadota, senior currency strategist at Barclays (LON :).
Elsewhere, the Australian dollar held near the two-week high against the dollar at $ 0.7661, while the British pound fell from $ 1.3910 to $ 1.3830 from Tuesday’s two-week high.
was flat at $ 57,966.
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