Safe-haven dollar in demand as worries over European lockdowns, U.S. taxes sap risk appetite
The dollar index was last up 0.65% at 91.8, reversing course from Monday when it dipped but hovered below four-month highs as investors sought safe havens.
Yields on U.S. Treasuries also slipped again, at 1.624%. Earlier Tuesday, the Treasury drew solid demand for two-year notes, with investors looking ahead to auctions for longer-dated notes later in the week.
The safe-haven U.S. dollar approached a four-month high on Wednesday as concerns over a third COVID-19 wave in Europe, potential U.S. tax hikes and escalating tensions between the West and China sapped risk appetite.
The yen also strengthened and U.S. Treasuries were bid while Wall Street stocks and crude oil tumbled as investors weighed the outlook for global growth.
The dollar index rose to a two-week high at 92.412 early in the Asian session, approaching a four-month top of 92.506 hit earlier this month.
The gauge “looks determined to test the top end of a new, higher 91-93 range we think will form in coming weeks,” Westpac strategists wrote in a client note.
“Extended European lockdowns have sapped confidence in a synchronised global rebound; meanwhile, the U.S. will have an impressive rebound in coming months amid a strong vaccine roll-out, stimulus payments and economic reopenings,” they said.
The euro edged toward a four-month trough below $1.18355 - trading as low as $1.18360 - after Germany extended a lockdown and urged its citizens to stay at home over the Easter holiday.
Worries over the pace of the pandemic recovery were also heightened after a U.S. health agency said the AstraZeneca Plc vaccine may have included outdated information in its data.
The flight to safety received an additional nudge when Treasury Secretary Janet Yellen told lawmakers that future tax hikes will be needed to pay for infrastructure projects and other public investments.
Yellen was testifying to the House Financial Services Committee along with Federal Reserve Chair Jerome Powell, who reiterated that an expected near-term spike in inflation will be transitory.
That helped tame U.S. Treasury yields, with the benchmark dipping to 1.6048% on Wednesday, continuing its retreat from a more than one-year high of 1.7540% touched last week.
Both Yellen and Powell are also scheduled to testify to the Senate Banking Panel on Wednesday.
Reference: Reuters
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