The US dollar is gaining ground on the other major currencies as the foreign exchange market reacts to rising Treasury yields. The prospect of inflation continues to dominate investors’ minds, as all the conditions appear to be in place for a massive rebound in economic activity that is likely to cause consumer prices to spike. Rising yields make it more expensive for those who bet against the greenback to maintain their positions, due to the higher swap costs, forcing the abandonment of short positions in a dynamic that is conducive to further gains for the American currency.
European benchmarks opened flat on Monday ahead of another busy week and after a difficult trading session in Asia. Reflation worries have resurged with traders already pricing the effect of rising prices from central banks’ monetary policies. It is interesting to note how last week’s bullish leverages (stimulus, vaccination rollout) have become today’s bearish drivers as they raise the prospect of a more hawkish tone from central banks. All eyes are on long-term borrowing costs this week with investors keenly following data and semantics from the Fed on Wednesday, the BoE on Thursday as well as the BOJ’s monetary policy decision from Haruhiko Kuroda on Friday. Even if most investors are already anticipating a “back-to-normal”’ situation with rising rates, the pace of any hawkish monetary policies are still uncertain and could significantly increase market volatility this week.
Independent writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.