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Dollar off lows, nears 20-year highs after historic bond rout -Breaking


© Reuters. This illustration, taken June 12, 2022 shows plastic letters that read “Inflation” on a U.S. Dollar banknote. REUTERS/Dado Ruvic/Illustration


By Saikat Chatterjee

LONDON (Reuters] – On Tuesday, the U.S. dollar trimmed some early losses and remained near a 20 year high while euro-rivals suffered as traders feared aggressive Federal Reserve rate hikes this week.

CME’s Fedwatch Tool reveals that investors banks like Goldman Sachs (NYSE 🙂 are expecting to see a 75 base-point rate rise at the end of Wednesday’s meeting. They also expect a 50 basis point increase in September.

This would mark a 75-basis-point rise, which is the largest since 1994. With the world’s stock markets suffering severe losses, dollar’s attractiveness as a safe-haven investment is increasing.

Kenneth Broux from Societe Generale, an analyst based in London said that “there are not compelling signs of bargain shopping in riskier currencies and profit taking on long-dollar positions after yesterday’s fireworks…

Friday’s crazy-hot inflation reading caused the worst day in two-year U.S. Treasury Bonds since 2009, and yields rose 54 basis points, the highest two-day increase since 2008’s Lehman Brothers collapse. Deutsche Bank (ETR:) said.

According to Brad Bechtel (global head FX, Jefferies New York), “75bps will get you to a location where they have stepped up the inflation-fighting system to the logical next stage amid persistently high inflation prints.”

The greenback has been gaining popularity due to the widening of rate differentials favoring the United States. However, traders have been able to increase their long-dollar trades by taking advantage of reduced long positions.

Only 12 billion dollars are owned by traders, roughly the same amount as the previous record set at the beginning of the U.S. tightening cycles in 2015.

The euro has reached one month highs against the Australian dollar, New Zealand Dollar, Swiss Franc, Canadian and Swiss franc. On Tuesday it hit a new 1-month peak of $1.0397 for euro before retracing to $1.0475.

Although nerves over official intervention gave the yen a brief reprieve, it soon returned to normal after the Bank of Japan purchased more bonds, which brought the 10-year yield to its original 0.25%.

After hitting a low of 135.22 Monday, it traded last at 134.40 dollars. The previous low was 133.88yen.