This week's focus is still on the potential strengthening of the US dollar amid the growth of yields on US government bonds. In fact, the position of the dollar is strengthening, which is due to investors' optimism.
On Monday, the US dollar shows growth for two sessions in a row. Experts believe that the reason lies in the reduction of its bearish positions on the part of most market participants. According to analysts, dollar rates were reduced to four-month lows. This was facilitated by an increase in the yield of US Treasury bonds, whose price has risen significantly recently.
Experts stated that the yield on 10-year US Treasury bonds was at 1.6320% at the start of the week, approaching last Friday's high of 1.6420%. They consider the growth in yields to be a strong supporting factor for the USD, which has pushed it to undeniable peaks. Moreover, analysts assume that the rise in yields on US government bonds will dominate the current week. Investors' attention continues to focus on this ahead of the Fed meeting, which is expected to be "dovish" and maintain current trends in the US economy.
The US currency was trying to hold onto its gained positions today. The EUR/USD pair traded around the range of 1.1938-1.1939, but then slightly fell to 1.1930. Analysts are worried that the pair will further decline, leading to the collapse of the euro, which lost 0.2%. In the event of a negative scenario and a fall of the EUR/USD pair below 1.1900, experts recommend short-term purchases. It should be noted that many hedge funds have already reduced their positions in the Euro currency.
The recently adopted $1.9 trillion stimulus package provided significant support to the US economy. Within the framework of this initiative, payments to Americans have already begun. Thus, the current situation is favorable for the US economy in February 2021 – producer prices in the US noticeably rose last month, provoking the largest annual increase in the last two and a half years.
Based on the observations of analysts, the US dollar and the yield of US government bonds are definitely holding in an upward trend. In this case, experts predict the USD to strengthen against the EUR and JPY. It is worth noting that the USD/JPY pair approached the level of $ 110 on March 15, after a nine-month high reached earlier. However, experts believe that the pair will not be able to break through this level in the near future.
At the same time, the national currency is also supported by the steady growth in US yields and the sale of the Australian dollar in view of the collapse of China's securities. On the other hand, traders and investors will closely monitor the signals that will come from the Fed this week. Market participants are watching the regulator's reaction to the increase in government bond yields, while awaiting a decision on further monetary policy. Many experts believe that the Fed will maintain zero rates until the end of 2023.
After the adoption of the $1.9 trillion stimulus package, the market expects a strong US employment report for March 2021. In the wake of these expectations, Treasury yields remain high, which supports the US dollar. The main driver for the dollar's strengthening was the reduction of rates. It should be noted that market players have reduced short positions on USD to the lowest level recorded in November 2020.