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US Dollar Edges Higher as Treasury Yields Rise

US Dollar Edges Higher as Treasury Yields Rise

Posted Wednesday, September 8, 2021 by
Aiswarya Gopan • 1 min read

The US dollar has reversed its bearish mood and is trading close to the highest levels seen since a week, supported by a strengthening in US Treasury yields even as investors turn more cautious towards the Euro ahead of tomorrow’s ECB meeting. At the time of writing, the US dollar index DXY is trading around 92.70.

The renewed strength in the greenback was driven by the benchmark 10-year US Treasury yields surging to the highest levels seen in almost two months during the previous session. Rising bond yields are an indication of increase in investor confidence in an economy and drive strength in the corresponding currency.

Meanwhile, investors are staying away from the common currency as they wait to hear the ECB’s policy decision before making their next moves. Markets are eager to know if the central bank will make changes to its PEPP or reduce the scope of its stimulus initiatives as the Eurozone economy emerges out of the coronavirus crisis and recovery picks up pace.

The US dollar had turned bearish a few days ago after the Fed cautioned that it was still too soon to think about reversing its hawkish stance, especially as the labor market in the country still showed signs of weakness. This outlook was further reinforced by a shockingly weak NFP report which released late last week, denting hopes for tapering of stimulus measures anytime soon.

The reserve currency could come under further strain on account of the rising death toll due to COVID-19 across the US. Despite being one of the fastest countries to roll out the vaccine, latest news reports show that the US has reported over 20,000 deaths due to the virus over the past couple of weeks, which could further raise worries about its economic recovery being affected.

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