US dollar plunges with Treasury yields, but rises for a week

  • Reuters, NEW YORK and LONDON

The U.S. dollar fell on Friday, along with U.S. Treasury yields, as investors eagerly awaited the U.S. Federal Reserve meeting next week for clarity on the outlook for a rate hike.

Expectations that the Fed would tighten monetary policy at a faster pace than expected had driven yields and the US dollar higher earlier this week.

Yields on US Treasuries fell as the decline in equity markets reflected low appetite for risk, while concerns over a potential conflict in Ukraine boosted demand for safe-haven debt.

Markets are pricing in up to four rate hikes this year, starting in March, and expect the Fed to start trimming its balance sheet by more than US$8 trillion within months.

Next week’s Fed meeting could shed some light on how quickly it will tighten.

“Everything is going to be somewhat quiet” until the Fed releases its statement on Wednesday after the two-day meeting, said Bipan Rai, North American head of currency strategy at CIBC Capital Markets in Toronto. “It makes sense that the dollar is somewhat muted today given the lack of real momentum on the data front.”

In Taipei, the New Taiwan Dollar rose against the greenback yesterday, gaining NT$0.002 on the Lunar New Year holiday catch-up day to close at NT$27,700, down 0.3% for the week.

The U.S. dollar index, which tracks the greenback against major peers, was down 0.1% on the day at 95.650, but up 0.5% on the week.

Against the yen, the dollar lost 0.4% to ¥113.680. For the week, the US dollar was down about 0.5% against the yen.

The euro was up 0.3% against the US dollar at US$1.1341, while down about 0.6% for the week.

The pound weakened significantly on Friday, coming back from a 23-month high against the euro hit in the previous session as weakness on Wall Street prompted investors to take profits after a rally this week.

Against the US dollar, the pound lost 0.24% to US$1.3560, its lowest level in more than a week.

Against the euro, the pound weakened 0.6% to £0.8364, moving away from a February 2020 high of £0.8307 tested on Thursday.

Traders pushed the pound higher on the belief that the Bank of England would raise interest rates as early as next month to combat soaring inflation.

Money market prices within more than 100 basis points (bps) in interest rate hikes this year and an 87% chance of a 25 bps increase in February, after data showed on Wednesday that l UK inflation last month rose faster than expected to its highest level in almost 30 years.

Another factor weighing on the pound was weak retail sales data. UK retail sales fell last month after consumers did much of their Christmas shopping earlier than usual in November.

Additional CNA reports, with an editor

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