The US dollar is back on the front foot, with the index that measures its performance in relation to other major currencies rising almost 0.5% during early Friday trading. These gains can, to a large extent, be attributed to rising treasury yields, with the 10 year benchmark once again approaching 1.6%, following President Biden’s signing of the American Rescue Plan late on Thursday. Many believe this stimulus package is likely to be the tipping point for the return of inflation, pushing investors into selling their low coupon bonds and driving a hike in yields, a dynamic that invariably leads to a stronger greenback. Another reason for the dollar’s dominance lies in the euro weakness that resulted from yesterday’s announcement by the ECB that the institution will increase the pace of its emergency bond purchases, in an effort to halt rising yields.
Ricardo Evangelista – Senior Analyst, ActivTrades