Dollar Up, Gains Over Low-Yielders Over Tolerance for Higher U.S. Bond Yields

The dollar was up on Tuesday morning in Asia, holding its ground against low-yielding peers on bets of a faster economic recovery from COVID-19 and tolerance for higher U.S. bond yields increased.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies was up 0.22% to 91.233 by 11:56 PM ET (4:56 AM GMT).

The USD/JPY pair inched up 0.07% to 106.82.

The AUD/USD pair edged down 0.19% to 0.7754, and the NZD/USD pair was down 0.26% to 0.7244.

The USD/CNY pair edged up 0.12 % to 6.4725 and the GBP/USD pair was down 0.36% to 1.3872.

The dollar soared above the three-week high hit overnight and could be on target to reach its February peak of 91.600, Across the Atlantic, the euro dropped to $1.2049, near its lowest level in almost two weeks.

Top European Central Bank (ECB) officials expressed concern about the recent rises in bond yields. ECB President Christine Lagarde said the central bank will prevent a premature increase in borrowing costs for firms and households, while François Villeroy de Galhau, Governor of the Bank of France, said some of the recent rises in bond yields were unwarranted and that the ECB must push back via its bond purchase program.

The ECB was markedly differed in its tone from the U.S. Federal Reserve. Fed Chairman Jerome Powell showed no undue concerns about rising bond yields and Richmond Fed President Thomas Barkin suggested the uptick in long-term bond yields so far could be an adjustment to stronger growth and inflation outlook. Atlanta Fed President Raphael Bostic even said during the previous week that bond yields remain comparatively low.

“Central banks continue to take diverging views on the signals sent by the recent rise in yields. The Fed is taking it as a positive signal,” National Australian Bank director of economics and markets Tapas Strickland said in a note.

In Asia, the Reserve Bank of Australia (RBA) kept March’s interest rate steady at 0.10% earlier in the day. The decision was in line with expectations as well as reinforcing RBA’s forward guidance for three more years of near-zero rates.

The central bank has stepped up bond buying following a global bond market selloff, and any further warning against rising yields could cap its latest rebound, some investors warned.

“The market has been in a euphoria for some time, and everybody says the dollar will weaken on rising risk appetite. But oil prices dipped yesterday, and gold also slipped. If commodity markets are waking up to the reality, then we could see some weakness in commodity-linked currencies,” SMBC Nikko Securities chief FX strategist Makoto Noji told Reuters.

Meanwhile, the $1.9 trillion stimulus package proposed by President Joe Biden will be debated by the U.S. Senate later in the week, further raising hopes that the U.S. economic recovery is on solid ground.