The greenback at press time remained fairly stable at the first trading session in March. The slight drop in the U.S dollar was not enough to trim its biggest gain seen in the U.S dollar index since June 2020 last Friday.
At the time of writing this report, the U.S. Dollar Index that gauges the greenback against a basket of major currencies inched lower by 0.04% to trade at 90.843 index points.
Currency traders are now focusing on the global bond market, where yields especially in the U.S bond markets gained yearly highs thereby raising hopes of a global economic recovery from COVID-19 triggered a selloff during the past week.
Bond moves are overriding economic data as the driver of currency markets, with treasury yields moving well ahead of economic fundamentals.
What you must know: The U.S. Dollar Index tracks the American dollar against a basket of other major currencies (like the Japanese yen, British pound sterling, Swedish Krona, and Euro).
Individuals hoping to meet foreign exchange payment obligations via dollar transactions to countries like Europe, and Japan, would need to pay more dollars in meeting such obligations.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave key insights on macros prevailing at the world’s biggest and most liquid financial market.
“At the beginning of the year and really up until just the last few days, the rates complex was priced for a perpetually and exceptionally dovish Fed.
“However, last week, there’s been ample evidence of investors getting stopped out of bullish currency bets as FX traders were caught far too short dollars against the backdrop of higher US Treasury yields, especially against commodity currency linkers.”
What to expect
That being said, it’s critical to note that recent price actions suggest most currency traders’ bias hasn’t changed: the global cyclical rebound should result in broad Dollar weakness despite a strong US economy.