Dollar hits three-month highs as Fed's Powell sticks to script

NEW YORK: The dollar surged to three-month highs on Thursday after Federal Reserve Chairman Jerome Powell failed to express concern about a recent sell-off in US Treasuries as some traders had expected, resulting in higher bond yields and demand for the greenback.

Powell set aside concern that a recent move up in US Treasury yields might spell trouble for the Fed as investors push up borrowing costs the central bank wants to keep low.

While Powell said the increase was "notable and caught my attention," he did not consider it a "disorderly" move, or one that pushed long-term rates so high the Fed might have to intervene in markets more forcefully to bring them down, such as by increasing its $120 billion in monthly bond purchases.

Some investors expected Powell to "at least acknowledge that there is some concern regarding the pop in yield, which he didn't do," said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.

"Overall his message remains the same, which is essentially they will maintain looser monetary policy until the economy shows consistent strength and we get back closer to what we were pre-pandemic in regards to both inflation and the labor market," Trang said.

The dollar index was last up 0.53% at 91.561, after getting as high as 91.663, the highest since Dec. 1. The euro dipped 0.73% to $1.1973, the lowest since Feb. 5.

Benchmark 10-year Treasury yields got as high as 1.555% but are holding below a one-year high of 1.614% reached last week.

The dollar has gained along with US government bond yields as impending US fiscal stimulus adds fuel to expectations of higher inflation and the rollout of vaccines against COVID-19 heightens optimism that the economy headed for recovery.

"The US is assuming the leadership position on growth matters, fiscal dominance and certainly vaccinations," said Mazen Issa, senior FX strategist at TD Securities in New York.

Jobs data for February on Friday is the next major US economic focus.

The Swiss franc and the Japanese yen continued their recent weakness. They have been hurt expectations the US will lead global growth, which some analysts are calling US exceptionalism.

"The traditional (funding currencies) like euro, yen and Swiss, look to be particular laggards in that environment under a higher US yield backdrop," said TD's Issa.

The franc weakened as far as 0.9297, the lowest since July 23. The yen reached 107.93, its weakest since July 1.

Higher-risk currencies, including the Australian dollar, by contrast, are positioned to outperform as global growth improves. The Aussie gave back earlier gains on Thursday, however, as stocks fell. It was last down 0.57% on the day at $0.7730, and is holding below three-year highs of $0.8007 reached last week.

In the cryptocurrency market, bitcoin fell 5.36% to $47,691. Ether dropped 3.21% to $1,518.