Dollar Rises on Safe-Haven Bid

30 May 2024 , 08:15 AM

With demand for safe haven assets and rising U.S. yields, the dollar’s appeal was enhanced by a sell-off in Treasuries, which sent the currency to a two-week high against its main competitors on Thursday.

After rising by 0.5% the previous day, the dollar index—which compares the value of the US dollar to six major currencies, including the euro, sterling, and the Japanese yen—reached its highest level since May 14 on Thursday, trading at 105.15.

After stronger U.S. economic data and some poorly received bond auctions, the dollar pushed to a two-week high versus the euro and continued its recovery from a more than two-month low. The jump occurred over the course of two days, rising 15 basis points above 4.6% for long-term Treasury yields.

Investors are alarmed by the bond market meltdown, as evidenced by the precipitous decline in global equities this week and the ensuing flight to the safest assets.

The sterling fell to $1.2696, extending its downward trend after it touched $1.2801 on Tuesday for the first time since March 21. The euro fell to $1.0796 for the first time since May 14.

But the yen recovered from an overnight low of 157.715 per dollar to close at 157.505 yesterday trade.

Japan’s yen has been gradually declining this month, approaching the 34-year low of 160.245 from a month prior. This has caused a sharp upswing that market participants strongly believe was caused by two rounds of dollar-selling intervention by the Bank of Japan and Ministry of Finance.

The likelihood of interest rate reductions by the Federal Reserve this year has decreased due to indications of persistent inflation, most notably an unexpected improvement in consumer confidence in data released on Tuesday.

The key macro event of the week, the release of the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation, is scheduled for Friday. Revised U.S. GDP statistics are due later in the day.

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