Dollar rally continues on surging yields, eyes on FOMC Minutes

Fueled by hawkish Fed commentary and upbeat data releases, the US Dollar Index has advanced to its highest level in nearly two years early Wednesday. The FOMC will release the minutes of its March policy meeting later in the day. Investors will keep a close eye on headlines surrounding the Russia-Ukraine conflict and the European Central Bank (ECB) officials’ speeches as well.

European Commission President Ursula von der Leyen announced on Tuesday that the European Union will impose a ban on Russian coal imports, roughly worth around €4 billion a year. The EU will also block all transitions with four major Russian banks. Later in the day, the United States is expected to unveil a new sanction package, which will reportedly include a ban on all new investments in Russia.

Fed Vice Chairwoman Lael Brainard said on Tuesday that the Fed was prepared to take “stronger action” if inflation and inflation expectations were to require it. Brainard further noted that they will move the policy to a more neutral position later this year via a combination of balance sheet reduction and rate hikes. Similarly, San Francisco Fed President Mary Daly reiterated that they could start the balance sheet reduction as early as May.

The data from the US showed that the economic activity in the service sector continued to expand at an impressive pace in March.

Meanwhile, Caixin Services PMI in China plunged to 42 in March from 50.2 in February, missing the market expectation of 53 by a wide margin. China will keep the city of Shanghai under full lockdown until they see the results of the next round of mass testing, which is scheduled to start on April 6.

EUR/USD fell below 1.0900 and touched its lowest level in more than a month. Investors grow increasingly concerned over the eurozone economy falling into recession amid a prolonged Russia-Ukraine conflict.

GBP/USD rose above 1.3150 on Tuesday but made a sharp U-turn in the second half of the day on renewed dollar strength. The pair was last seen posting small daily losses slightly above 1.3050.

Pressured by surging US Treasury bond yields, gold closed in negative territory on Tuesday. Early Wednesday, XAU/USD is trading in a relatively tight range near $1,920.

USD/JPY gained nearly 100 pips on Tuesday and stretched higher toward 124.00 early Wednesday. The benchmark 10-year US Treasury bond yield is up 2% at 2.6% heading into the European session.

AUD/USD advanced to its strongest level since June 2021 on the hawkish tilt seen in the Reserve Bank of Australia’s forward guidance. The pair, however, erased the majority of its gains and went into a consolidation phase below 0.7600.

Bitcoin lost more than 2% on Tuesday and dropped toward $44,000 early Wednesday before staging a rebound. As of writing, BTC/USD was little changed on the day at $45,400. Ethereum is down nearly 5% from the three-month top it set at $3,580 earlier in the week and trades below $3,400.

Subscribe to our newsletter

Don't miss new updates on your email