Dollar holds firm as Treasury yield jumps, spurring rebound

LONDON (Jan 12) - The U.S. dollar held onto its recent gains on Tuesday after a spike in U.S. Treasury yields lifted demand for the currency.

The dollar had hit a more than 2-1/2-year low in January after sliding for months as ultra-dovish policy from the Federal Reserve encouraged investors to seek alternative currencies.

But expectations for a wave of spending under an incoming Joe Biden administration have pushed Treasury yields higher, with the 10-year yield reaching a 10-month high on Tuesday. The dollar has bounced 1.5% since last Wednesday.

Not only have markets brought forward bets on Fed interest rate increases to 2023, many also reckon it could start withdrawing, or tapering, asset purchases earlier.

The dollar index, which measures the greenback against a basket of currencies, was unchanged at 90.438, above lows of 89.206 hit last week.

Reuters