FOREX-Dollar tracks Treasury yields higher, bitcoin holds firm

FOREX-Dollar tracks Treasury yields higher, bitcoin holds firm

FOREX markets saw the US dollar increase in value on the back of a rise in US Treasury yields as investor uncertainty grew around pricing for interest rate cuts in 2020. Cryptocurrency bitcoin held strong on the back of anticipation surrounding the Securities and Exchange Commission’s potential approval of a spot bitcoin exchange-traded fund.

Market experts predict around 135 basis points of easing for the Federal Reserve this year, with a likely chance the cuts will start in March. Bank of America’s Senior G10 FX Strategist, Kamal Sharma, suggested the dollar’s trajectory was largely reliant on developments in the US fixed-income markets, but also highlighted that it has not been a straight line for the currency throughout 2020 so far. Money market traders price in a 60% chance that rate cuts will begin in March.

Higher Treasury yields

The US Treasury’s 10-year yield increased by 4.5 basis points to 4.0455% on Tuesday, having risen since the end of 2019 when it hit 3.783%. Experts suggest the market is still finding its feet when it comes to determining the trajectory and timing of a US rate cut, with a majority of traders expecting one by March. Bank of America predicts a soft landing and bull steepening ahead, which should be supportive of risk assets. Last week, the US dollar index, which measures the greenback against a basket of six major currencies, increased by 1%.

Other currencies

The euro last saw a value of $1.0934, above its three-week low of $1.0877, while sterling fell by 0.2% to $1.2721. In Asia, it was noted that for the second straight month in December, core inflation in Japan’s capital had slowed down.

While this would usually put pressure on the Bank of Japan to exit ultra-loose monetary policy, sources suggest the yen increased by just 0.1% to 144.01 per dollar. The Australian dollar remains in the news, having stood at $0.6698 after reaching its three-week low of $0.6641 last Friday, while the kiwi fell by 0.2% to $0.6243 yet remained clear of its three-week low of $0.6182 on Friday.

Cryptocurrency and investment management

Bitcoin saw an increase in value to $46,708 and reached a 21-month peak of $47,281 in its previous session, supported by a number of investment managers disclosing potential fees for their proposed spot bitcoin ETFs.

This move marks another step in the approval of a US Securities and Exchange Commission ruling. There is increased engagement from the SEC, leading some to believe in the possibility of a positive outcome, with investor expectations high. However, experts warn that a disappointing result could lead to negative consequences such as ‘selling the news.’ The second-largest cryptocurrency, Ether, fell by 1.4% to $2,299.