Tom Westbrook

SYDNEY, (Reuters) – The dollar was stable on Wednesday following a sharp rise in U.S. yields overnight. This lifted it above the support levels it has held over the last few months as it anticipates rising U.S. rates.

On Tuesday the euro dropped 0.7%, marking its largest daily decline in one month. It is now back at its 50-day moving mean of $1.1323. Over the past two sessions, two-year Treasury yields increased by 15 basis points to surpass 1%. Benchmark 10-year yields are at an all-time high of 1.8842%. [US/]

The US dollar also gained support against New Zealand, Australian, and New Zealand dollars. Sterling remained below its 200 day moving average.

Trader anxiety is growing over a possible hawkish surprise as the U.S. Federal Reserve meets next week to determine policy.

Jan Nevrusi, strategist at NatWest Markets said that “a lot of (Fed] officials left us with negative impressions right after going quiet (ahead) of the meeting.”

“After Tuesday’s price action, there was slightly more than one increase priced in for March and I think it will oscillate within the lower half of the 25-50 base point range going into next week.”

Futures on Fed Funds have priced three additional hikes for 2022. If traders begin to expect rates to increase faster than they are, analysts believe that the dollar will continue its strength.

Kit Juckes, strategist at Societe Generale (OTC) stated that “we expect the U.S. to rate rethink” and said the latest shift in yields was a reflection of a push higher for the implied terminal rate rather than a slower pace of initial increases – to support dollar in first half of year.

The U.S. bond markets moved in a way that upset equity investors. This underpins the safe-haven Japanese yen which is currently at 114.67 per dollar.

On Tuesday, the index rose 0.5% and was at 95.768 by Wednesday.

The delicate situation in Ukraine is also a concern for traders. When Antony Blinken, U.S. Secretary Of State, meets Russia’s Foreign Minister in Geneva this week, he will attempt to diffuse a Russian crisis.

Australian dollars stayed below their 50-day moving mean of $0.7187. The resistance level has been just below 73 Cents. It was held at $0.6771.

Sterling took a hit in the recent sessions, but will return to focus on Wednesday as British inflation figures are released.

An almost 10-year-high annual headline inflation of 5.2% is predicted. This surprise could lead to further betting on Bank of England rate rises, and strengthen the pound.

The last time it was there, it was at $1.3591.

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Exchange rate bids starting at 0053 GMT

Description U.S. Close RIC Pct Change Pct High Low Bid

Previous changes

Session

Euro/Dollar

$1.1326 $1.1327 -0.01% -0.38% +1.1330 +1.1320

Dollar/Yen

114.6900 114.5800 +0.02% -0.37% +114.6950 +114.6000

Euro/Yen

129.88 129.79 +0.07% -0.34% +129.8900 +129.7500

Dollar/Swiss

0.9171 0.9175 -0.03% +0.55% +0.9176 +0.9171

Sterling/Dollar

1.3590 1.3598 -0.03% +0.51% +1.3600 +1.3593

Dollar/Canadian

1.2506 1.2513 -0.04% -1.08% +1.2512 +1.2497

Aussie/Dollar

0.7179 0.7186 -0.13% -1.27% +0.7189 +0.7177

NZ

Dollar/Dollar 0.6765 0.6765 -0.01% -1.17% +0.6775 +0.6765

All spots

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