TOKYO, March 29 — The dollar was poised today for its strongest gain in five months as investors responded positively to a bounce in US Treasury yields and as some of its rivals were hit by dovish signals from their own central banks.
With many currencies on the defensive, the dollar has weathered a decline in benchmark Treasury yields to a 15-month low. Against a basket of key rival currencies, the US currency was a shade higher at 97.217.
The index was on track for a more than one per cent rise in March, its best monthly performance since gaining 2.1 per cent in October last year. It has risen 1.5 per cent from a near two-month low of 95.74 brushed on March 20.
The dollar held strong even as data overnight showed the US economy slowed more than initially thought in the fourth quarter of last year.
US gross domestic product increased at a 2.2 per cent annualised rate, the Commerce Department said yesterday, down from the initial estimate of 2.6 per cent.
The euro and sterling have fallen this week as yields affecting the currencies have plunged, Daiwa Securities’ senior currency strategist Yukio Ishizuki said.
“It feels like the impact of the decline in yields in those markets was larger,” Ishizuki said.
“Though US yields have dropped, investors seem to have sold currencies from markets about which they have the biggest worries about the state of the economy. That seems to have lifted the dollar,” he added.
The euro was a tad higher at US$1.1228 but remained down about 1.2 per cent for the month in the wake of sliding yields and fears of a prolonged economic slowdown hitting the euro zone.
The single currency has also been weighed down by speculation the European Central Bank will introduce a tiered deposit rate, providing a sign that policymakers plan to keep interest rates low for longer.
Sterling licked its wounds today, last trading up 0.2 per cent at US$1.3065 after sinking more than 1 per cent overnight as the prospects for a swift agreement on Brexit faded.
Against the yen, the dollar tacked on a tenth of a percent to ¥110.77. That put it on track for a 0.5-per cent loss against the Japanese currency in March.
Today, official data showed Japan’s industrial output rose 1.4 per cent in February from the previous month, up for the first time in four months, though that came after a sharp 3.4 per cent slump in January.
The country’s jobless rate fell in the same month to 2.3 per cent, underscoring a tight labour market despite tepid wage gains and inflation.
Investors will be focused on developments in the US-China trade talks today.
“Investors are hoping for some signs of progress to bolster sentiment, although indications from the US are that this will now be a long process,” said Nick Twidale, chief operating officer at Rakuten Securities Australia.
“Expect more risk off trade conditions if this looks set to be another step in a lengthy process,” he said in a note.
China will sharply expand market access for foreign banks and securities and insurance firms, especially in its financial services sector, Premier Li Keqiang said yesterday, as US officials arrived in Beijing for trade talks.
Earlier, sources told Reuters that China has made proposals in talks with the United States on a range of issues that go further than it has previously.
Increased risk appetite helped lift the Australian dollar, with the Aussie last advancing a sixth of a per cent to US$0.7086.
Market participants will also be watching Federal Reserve policymakers scheduled to speak later in the day.
The 10-year US Treasury note yield edged up to 2.405 per cent, extending its rise after coming off a 15-month low of 2.340 per cent touched overnight. — Reuters
