The dollar held firmly near three-month highs on Friday after surging overnight as Federal Reserve Chair Jerome Powell stuck with dovish rhetoric despite a recent spike in bond market volatility.
The U.S. currency soared the most in a month after Powell said the violent sell-off in Treasuries last week was “notable and caught my attention” but was not “disorderly” or likely to push long-term rates so high the Fed might have to intervene more forcefully.
Instead, he reiterated a commitment to maintain ultra-easy monetary policy until the economy is “very far along the road to recovery.”
Powell’s remarks reignited selling in Treasuries, with the benchmark 10-year Treasury yield jumping back above 1.5% and rising as high as 1.5830% in Asia. Last week, it had soared to a three-month top of 1.614%.
Riskier currencies including the Australian and New Zealand dollars slid along with stocks as investor sentiment again turned sour.
“Quite a night for market volatility, with the bond market the centre of attention,” Ray Attrill, head of forex strategy at National Australia Bank in Sydney, wrote in a client note.
“The market was seemingly looking for Powell to push back harder on the recent increase in yields.”
The dollar index was little changed at 91.660 early in the Asian session after gaining 0.7% overnight.
The euro slipped 0.1% to $1.19635, a one-month low, following a 0.7% slump overnight.
The dollar eased slightly to 107.835 yen, but remained near the multi-month high at the cusp of 108 touched during Thursday’s 0.9% surge.
The safe-haven dollar has been supported both by the higher Treasury yields themselves, and the upswing in risk aversion the bond rout has fomented.
Impending U.S. fiscal stimulus is adding fuel to expectations of higher inflation, as the accelerating rollout of COVID vaccines heightens optimism for an economic recovery.
While many analysts expect commodity-linked currencies to climb as economies reopen after the pandemic, they have been hurt by the souring mood.
The Aussie weakened 0.3% to $0.7705, extending Thursday’s 0.7% drop. The kiwi fell 0.2%, adding to its 0.8% slide overnight.