The dollar rose to its highest level in a month against its basket on Tuesday and risky currencies fell back, as underlying concerns about rising bond yields drove investors back to safe havens.
Rising returns have frightened markets in recent weeks, with participants worried that an economic recovery from the effects of COVID-19, combined with fiscal stimulus, could cause a halt in inflation from pent-up consumer demand when the shutdowns end.
Risky currencies, including the Australian and New Zealand dollars, recovered some losses recently on Monday, as returns fell and stock markets rose. But they resumed their decline on Tuesday.
The dollar rose to its highest in a month compared to a basket of currencies, up 0.3% on the day at 91,326 at 0808 GMT, in its fourth straight earnings session.
The Swiss franc was the lowest since November 2020 against the dollar. Swiss dollar has risen since the beginning of January and reached about 3.8% so far in 2021.
“With low returns carrying the most burdens of all equities at present, even though risky assets are moving back to a positive area later today, the USD can still prove its resilience,” ING strategists wrote in a note to clients.
China’s banking and insurance authorities cautioned against the risk of bubbles bursting in foreign markets, saying that Beijing is studying measures to manage capital inflows to prevent turbulence in the domestic market.
The New Zealand dollar fell by about 0.6% to 0.7222 against the US dollar.
The Australian dollar fell 0.3% to 0.7747 against the US dollar, after the Reserve Bank of Australia pledged to keep interest rates historic.
“However, we continue to believe that the strengthening global recovery stimulated by continued loose monetary and fiscal policies will remain supportive of higher commodity prices and a stronger Australian dollar in the coming year,” wrote MUFG currency analyst Lee Hardman.
The euro fell after top officials at the European Central Bank sounded the alarm over rising bond yields.
Politician Francois Villeroy de Galhau said on Tuesday that some of the recent rises were unjustified and that the ECB must push back with the flexibility in its bond buying program.
Luis de Guindos, Vice-President of the ECB, said that the ECB had the flexibility to counteract all unwanted interest rate hikes.
Market participants said the ECB and the US Federal Reserve took different notes on rising bond yields, with the Fed appearing less concerned.
At 0842 GMT, the euro fell 0.3% to $ 1.20125 and had reached its lowest point in almost a month.
A quick estimate of inflation in the euro area for February is estimated at 1000 GMT.
Elsewhere, bitcoin was one touch lower, down 1% to around $ 49,000 at 0834 GMT, after recovering from some recent losses during the previous session.
Source: Reuters (Report by Elizabeth Howcroft; edited by John Stonestreet)