November 22 (Reuters) – The dollar rallied on Monday, following the rise in Treasury yields after President Joe Biden reappointed Jerome Powell for a second term as Fed chairman, signaling the stability of the policy after calls from fellow policymakers the last week to consider a faster reduction.
The news reinforced the view that the Fed is increasingly inclined to accelerate the reduction in QE so that it can start raising rates in the second quarter of next year, rather than the start of the previously expected third quarter when a longer reduction process was planned.
EUR / USD fell 0.5% to a new 16-month low of 1.1236 on EBS, with the euro already plagued by a record of new COVID-19 cases and an intensification of euro zone restrictions.
These events have given ECB chief Christine Lagarde yet another reason to pause before reducing housing, saying a rate hike in 2022 is not predictable. But there is growing debate over the emergency pandemic purchasing program which is due to end in March, and the subsequent role of the pre-existing asset purchasing program.
With cross-currency swaps suggesting a potential reduction in dollar liquidity at year-end amid the EUR / USD breakout this month and barely crisp IMM specs, it’s not difficult to consider a price drop towards the 1.10 support before or after December 14th. -15 Fed meeting.
The dollar’s biggest gains among the majors were the 0.76% rise against the yen, with JGB yields the least able to adjust upward with Treasuries due to curve control. rates by the BOJ.
USD / JPY shrugged off Friday’s first drop to support the uptrend and retracement and used a group of moving averages and the daily tenkan and kijun lines as the basis for Monday’s run to the peak. multi-year of 114.975 from last week.
The 115 level is considered essential for options traders after being vigorously defended last week. But if 5-year Treasury yields can erase their pre-pandemic lows and resistance to the key 1.30% retracement, that could be a signal for a breakout of 115 and a run to the December peak. 2016 at 118.66 and close to the Fibo target of 161.8%.
GBP / USD fell 0.44% to its lowest level in six sessions, driven by further pandemic lows in 5-year Gilt-Treasury spreads. Although the BOE is expected to raise rates as early as next month and overtake the Fed next year, the pound’s yield advantage is expected to erode in 2023.
Most high beta currencies fell against the dollar as Treasury yields rose sharply.
Oil prices were on the rise despite a report that the United States and other countries would announce the release of reserves on Tuesday.
Bitcoin and Ether were heavy again, although Ether remains above its 55-day moving average and cloud support.
Tuesday’s highlight is the November Global PMI.
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(Edited by Burton Frierson Randolph Donney is a Reuters market analyst. The opinions expressed are his own.)
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