Dollar Rallies as Yield Spike Spooks Markets

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Dollar Rallies as Yield Spike Spooks Markets

FEBRUARY 17, 2021

After trading on the defensive for the past week, the greenback continued its momentum from late yesterday overnight. 

Overview

The renewed dollar strength comes as U.S. Treasury yields surged and touched a one-year high.  The quick spike higher has put traders on alert and caused global equities to dip overnight.  American futures are fairly flat.

This morning’s data is highly anticipated and may dictate the direction of risk and the U.S. dollar for the rest of the session.  Economists estimate that retail sales in the U.S. jumped 1.1% in January, up from a 0.7% contraction in the month prior.  The so-called “core readings” are also expected to show impressive improvements.

At the same time, we will get a look at producer prices.  Consumer inflation data registered right in line with expectations and tempered concerns that rampant inflation is on the horizon.  Indeed, numerous Fed officials have said they expect to overshoot their 2.0% target from time to time in the future.  At 2 pm today, the Federal Reserve will release the minutes from its last FOMC meeting in January.


What to Watch Today…

  • US retail sales at 8:30 am

View Economic Calendar

TEMPUS IN REUTERS – DOLLAR FEELING THE HEAT
US Dollar Index Chart
“The reflation trade that boosted equities and caused the 30-year yield breach 2% has changed to worries that a quick spike in inflation would be detrimental to risk and also the dollar,” said John Doyle, vice president of dealing and trading, at Tempus Inc. in Washington.

CAD  

Commodity-based currencies had been the biggest gainers so far this month again the U.S. dollar, however, they are the biggest losers overnight.  The Norwegian krone and the New Zealand dollars were the worst performing G10 currencies.

The Canadian dollar was mostly flat against its American counterpart even as the price of oil continues to tick higher due to extreme weather across the country.  U.S. oil output has fallen by over 3 billion barrels a day and production in Texas has fallen by over 60%.

GBP  

The British pound had been on an impressive march higher against the U.S. dollar but experienced some headwinds overnight due to general dollar strength.  However, most signs point to more sterling strength in the future as modest progress in disturbing the Covid-19 vaccine has thrown cold water on the prospects the Bank of England will have to enact negative interest rates.

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