Rally in yields rise the dollar after the Fed comments

Rising US bond yields boosted the dollar on Thursday, helping it rebound after hitting two-week lows. This was a consequence of the Federal Reserve stalling speculation about possible rate hikes of interest.

US 10-year Treasury yields stood at their highest levels in 13 months in morning trading in London, rising above 1.70% for the first time since January 24, 2020.

The dollar index was up 0.4% at 91.671, from a two-week low of 91.300.

Federal Reserve Chairman Jerome Powell stopped speculation that the improving economic outlook could push the central bank to reduce its monetary incentive programs.

The Fed expects the economy to grow 6.5% this year. If so, then this would be the most significant annual jump in the gross domestic product since 1984. Inflation is forecast to exceed the Fed’s 2% target to 2.4% this year, although the authorities believe it will return to around 2% in the following years.

Valentin Marinov, head of G10 FX research at Credit Agricole, stated that the new rally in US treasury yields should continue to support the dollar against low-yield currencies such as the euro, the yen, and the Swiss franc.

Marinov said the Federal Reserve meeting had disappointed bullish investors in the dollar.

The euro was down to $1.19505, below its week-long high of $1.19900, after rising 0.6% on Wednesday.

The dollar increased against the yen

The dollar was up 0.3% against the yen, to 109,120 yen.

According to a Nikkei publication report, the Bank of Japan is expected to widen the implicit band slightly. As a result, the long-term interest rates will hover around the BOJ 0% target.

According to a Reuters poll conducted this month, two-thirds of Japanese companies expected the Bank of Japan to curb long-term interest rate hikes and hold them steady. 

GBP maintains range

The British Pound was trading flat at $1.3963.

Bank of England is likely to maintain its benchmark bank interest rate at a record low of 0.1% on Thursday. Its bond purchase program will remain unchanged at £895 billion.

Rodrigo Catril, a currency analyst at National Australia Bank in Sydney, said that the Bank of England would talk about its economic outlook. At the same time, it will emphasize that there is still a long way from full recovery, he stated.

GBP/USD pair remains within a well-defined range, with 1.40 proving to be a challenging area to break. Meanwhile, support comes in at 1.38.