FINAM FOREX: US Treasury Yields Growth Supporting Dollar

30 March 2021

Andrey Maslov, analyst, FINAM Group

On Tuesday, March 30, the EUR / USD pair is down 0.19% and has been at lows since the fall of 2020, primarily due to the unfavorable epidemiological situation in Europe. The DXY dollar index is growing by 0.21% and is at the level of 93.10.

The dollar continues to strengthen against major currencies on rising Treasury yields, as faster vaccination rates and a boost to the US economy have raised inflation expectations. So, at the moment, the American currency has reached an annual maximum against the Japanese yen.

Upbeat sentiment on the dollar is also rising amid expectations that US President Joe Biden should unveil a large infrastructure spending plan later this week, as well as additional spending plans for kindergarten and health care to be unveiled after Easter. In addition, the non-farm payroll report, which will be released this Friday, will also affect the US currency.

The yield on 10-year US government bonds rose to 1.7490%, close to a 14-month high of 1.7540% reached earlier this month. The yield on five-year Treasuries for the first time since March last year reached 0.9170%. Higher yields make the currency more attractive for investments, which has been happening with the dollar since the beginning of 2021.

The dollar as a defensive currency was also supported by investor concerns about the potential impact of the collapse of the hedge fund Archegos Capital, even as pessimistic sentiment about the event is easing.

In Europe, the near-term outlook for a recovery in economic growth has turned bleaker as France and Germany have introduced tougher restrictive measures to contain the continent’s third wave of Covid-19. The euro was also under pressure from widening spreads between US and German Treasury yields.

For now, the euro is near its five-month lows hit on Monday, and the March 2021 decline was the largest since mid-2019.

With regard to macroeconomic statistics, yesterday in the US was published the index of business activity in the industrial sector from the Federal Reserve Bank of Dallas for March, which amounted to 28.9 points, which is significantly higher than the February results of 17.2 points.

Today in the US will become known data on the house price index from S & P / CaseShiller for January and the consumer confidence index for March.

In the eurozone today will be released the final data on the consumer confidence index for March, as well as the index of economic sentiment. In Germany, in turn, will become known preliminary data on the inflation rate.

The EUR / USD rate continues to decline, breaking through the support line at 1.1800 and is trading at the level of 1.1744. Stochastic lines are in a strongly oversold zone, which indicates a limited downside potential for the instrument in the short term.

This information is not investment advice.


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