The rising U.S. Treasury yield is picking up the dollar, with contrarians pushing against consensus forecasts for a long slide with world currencies.
US DXY ICE Dollar Index,
which measures the currency against a basket of six major competitors, up 0.3% at 92.268 Monday, trading at its highest level since Nov. 24, according to FactSet. The benchmark is up 1.5% so far in March and 2.6% for the year after falling to a low of 22 months in January.
“The song remains as it is, at least in the US with US output continuing to erode higher and dragging the USD (US dollar) along with it,” he wrote. Brad Bechtel, head of global currencies at Jefferies, in Monday’s note to clients.
Yield on 10-year Finance note TMUBMUSD10Y,
rose around 4 points for trade above 1.60% on Monday. Bond yields and prices move in other directions. The move continued with a significant backlash in output blamed for violent circulation out of high-growth stock to more cyclical, value-based names.
That circulation was still visible on Monday, with Dow Jones industrial average Dow Jones,
surrendered more than 600 points, or 2%, at its high session to trade at an intraday chart, while the Nasdaq Composite COMP is tech-heavy,
fell 0.6%.
Higher U.S. yields relative to foreign bonds are seen as a fundamental element of support for the dollar as they spurred demand for U.S. assets.
Most analysts, however, have watched the dollar remain under pressure after last year’s steep slide, arguing that global economic construction and the Federal Reserve’s commitment to letting the economy run hot before withdrawing on monetary stimulus the dollar would see a slide against key competitors.
See also: Complaining stock market investors dismiss the risk of a sharp fall with the U.S. dollar, warns veterans’ money watcher
Contrarian dollar bulls have argued that the U.S. is on the verge of outperforming other major economies as the global economy recovers, pushing the Fed to pull back on monetary stimulus sooner than other major banks.
Expectations for that position are starting to rise, Ben Randol, an analyst at Bank of America, said in a note Monday.
“Fed’s normalization is a steeper, closer route to global central banks largely starting to support the U.S. dollar, our analysis shows. This evidence supports our bullish USD thesis based on fundamental growth and a flat rate divergence this year, especially as [currency] sensitivity is erraticly expected to increase in the coming months, ”he wrote. “We are still contrarian [dollar] bulls and this process is expected to continue playing outdoors. ”
Dollar bears argued that yields were unlikely to rise, leaving the currency moving lower against major competitors once the global bond market regained equity.
In fact, it is less than eye-catching when it comes to the attractiveness of U.S. output and the dollar, Steve Barrow, head of G-10 strategy at Standard Bank, said in a note Monday. The gains have been “jeopardized” by the expectation of inflation, which U.S. output is real, or reversed by inflation, moving less than the stated yields, he said.
In addition, the increase in the Treasury’s 10-year nominal yield is expected to “explode itself” in the 2% range. Barrow cited a list of other factors that may be keeping an eye on the dollar, including a fight against changing forecasts for policy levels to stay anchored at current levels for the dollar. years to come, as well as the expectation that the U.S. overheating economy will lead to a rapid decline in the U.S. trade Balance.
For now, bulls may be high-handed when it comes to the technical picture after the DXY, citing the ticker for the ICE Dollar Index, posted a weekly close Friday above the DXY. its 100-day moving average. That establishes a possible test of the 200-day moving average, which is at 92.95, Bechtel said.
The euro EURUSD,
carrying the most weight in the DXY, it fell below its 100-day MA, with support at the 200-day at $ 1.1825 next look for dollar supporters. The euro was down 0.5% at $ 1.1856 in recent trading.
The 200-day MA will be “ONLY for the model / momentum fund community and I think we’ll see some form of battle up around those levels,” he said. “It’s unlikely we’ll just punch through and keep going, we’ll see a short-term [dollar] bull brings profits and long-term players defend those levels. Only if we make a successful punch will we see the tide turn on a short USD sentiment. ”