June 28, 2022

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Dollar stalled near 20-year highs after historic bond collapse

Dollar stalled near 20-year highs after historic bond collapse

LONDON (Reuters) – The US dollar consolidated gains near a 20-year high on Tuesday as rivals from the Australian dollar to the euro incurred heavy losses as traders braced for a aggressive rate hike from the Federal Reserve this week.

Expectations for a 75 basis point increase at the conclusion of the two-day meeting on Wednesday are almost felt in rates, according to CME’s Fedwatch tool, with investment banks such as Goldman Sachs forecasting a rate hike of 75 basis points in June and July, and 50 basis points in September. Read more

The increase of 75 basis points will be the largest since 1994 and with global stock markets taking heavy losses, the appeal of the dollar as a safe haven asset also enhances its appeal.

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“There are no convincing signs to look for trades in riskier currencies or take profits from long dollar trades after yesterday’s fireworks… You don’t want to lower the dollar in this scenario,” said Kenneth Brooks, strategist at Societe Generale in Cairo. . London.

Friday’s sharp inflation reading fueled the worst day for two-year US Treasuries since 2009; Deutsche Bank said yields, taken combined with Friday’s post-CPI jump, rose about 54 basis points, the largest two-day move since the 2008 Lehman collapse.

Widening spreads in favor of the US boosted the attractiveness of the US currency, while lower long positions also helped traders increase their long dollar positions.

Traders own just $12 billion, nearly a quarter of the record long held at the start of the last US tightening cycle in 2015.

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It hit one-month highs on the euro, Australian dollar, New Zealand dollar, Swiss franc and Canadian dollar and hit a new one-month high of $1.0397 per euro on Tuesday, before easing back slightly to $1.0475.

Nerves over official intervention also gave the yen a short respite, but it quickly eased after the Bank of Japan expanded a round of bond purchases, bringing the 10-year government bond yield back to the 0.25% ceiling.

It was last traded at 134.18 per dollar after hitting a 24-year low of 135.22 on Monday.

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(Sikat Chatterjee report). Editing by Ed Osmond

Our criteria: Thomson Reuters Trust Principles.