Dollar Rises Most in 4 Weeks, Tracking Gain in Treasury Yields by Dennis Pettit

March 29, 2017

  • USD/JPY surge from near 110.00 traps intraday shorts
  • Sterling sheds early gain, longs bail before Article 50 hits
  • The dollar posted its biggest gain since March 2 as a rise in the 10-year Treasury yield provided some incentive to buy back shorts that were set earlier in the day. The currency extended gains after Fed vice chair Stanley Fischer reiterated that two more rate hikes in 2017 seem appropriate.

    Trading flows were modest overall amid several idiosyncratic drivers. Markets continued to recalibrate expectations for the dollar and global growth after the Republican health-care bill was withdrawn on Friday, posing a potential hurdle to fiscal stimulus that was a keystone of the Trump legislative agenda. The yen rose versus a majority of its G-10 peers while the British pound fell as intraday longs bailed ahead of the Wednesday triggering of Article 50 that will begin the formal Brexit negotiation process. The Bloomberg dollar index was up about 0.5 percent after trading sideways for most of the day.

    USD/JPY was trading near fresh high ~111.20, filling orders above 111.05/10, after reversing losses that saw a mid-morning low at 110.18. The dollar rebound closely tracked the rise in the Treasury yield off its low and may have caught intraday players short, with stops tripped above 110.50, a trader in New York said. The yen had been the strongest gainer vs the dollar in the G-10 peer group amid early risk aversion that faded later in the day as U.S. stocks rose ~0.8%.

    USD/JPY has been supported in recent sessions by strong bids ahead of 110.00 from option-related and other players, though stop-loss sell orders placed below that level could trigger a stronger drop toward the 200-DMA at 108.28.

    GBP relinquished all gains from earlier in the day and fell to a fresh low as intraday players were caught wrong-footed, triggering stop-loss sell orders below 1.2530 just ahead of the U.K. close. GBP losses extended after the Scottish Parliament backed a call for a second independence referendum, as expected, though the U.K. government quickly rebuffed that proposal.

    Article 50 is due to be triggered Wednesday, may have seen some last-minute position adjustment ahead of that well-heralded event. GBP breaching support from Monday's 1.2476 low with further support at the converged 55/100-DMAs ~1.2415.

    Elsewhere, EUR/USD fell to new low 1.0799 as USD gains strengthened amid thin afternoon trading and after the shared currency was trapped in a narrow 1.0846/73 range throughout the morning

    EUR offers are in place above 1.0900 with stop-loss buyers positioned above Monday's 1.0906 high, traders said. Bids under 1.0850 cushioned an early EUR drop and further bids are placed around 1.0780, traders in Europe said