Dollar & Yields Up, Sterling Stays Calm 

The dollar traded higher in early European forex trading on Wednesday. It was helped by a jump in U.S. yields ahead of a massive bond auction. Also, because there were hopes that the coronavirus outbreak was coming under control.

At 3:10 AM ET (0710 GMT), the Dollar Index was up 0.2% at 93.736. USD/JPY gained 0.3% at 106.78 while EUR/USD lost 0.1% at 1.1732.

The yield on 10-year U.S. debt climbed by its most in two months overnight. It was ahead of a record $38 billion auction later Wednesday.

The rise in yields was driven by both repositioning ahead of big issuance this week. As well as a sense that the U.S. recovery is broadening and looking more robust. These were statements from NAB senior FX strategist Rodrigo Catril in a report.

Recent reports have suggested a decline in hospitalizations in the U.S. due to the Covid-19 virus. This strengthened confidence that the pandemic is coming back under control.

The Dollar: FX Markets

Elsewhere in the FX markets, GBP/USD fell 0.1% to 1.3045. Official figures showed the U.K. economy has shrunk by a record 20.4% between April and June. This was the largest contraction reported by any major economy to date.

Meaning, the U.K.’s economy, the world’s sixth biggest, has entered a recession, its first since the financial crisis. The previous quarter had also seen a gross domestic production contraction.

In forex, sterling losses were minor, as a sharp slowdown during the height of the lockdowns was expected. There were signs of recovery in June alone when gross domestic product grew by 8.7% from May.

The recession brought on by the pandemic has led to the biggest fall in quarterly GDP on record. This was a statement from Jonathan Athow of the Office for National Statistics.

The economy began to bounce back in June. However, despite this, GDP in June still remains a sixth below its level in February before the virus struck.

From a technical point of view, GBP/USD risks further downside in the near-term. Although within the broader 1.2950/1.3160 range, according to FX strategists at UOB Group.

Downward momentum is starting to improve and GBP could drift lower to 1.3005. For today, a sustained decline below 1.3005 is not expected. Next support is at 1.2950.

Meanwhile, The New Zealand dollar NZD=D3 fell 0.6% to $0.654.