The dollar rise for a fourth consecutive day on Thursday due to an increase in U.S. Treasury yields encouraged investors to cut their losses. Markets grew cautious with driving it higher as the currency advanced to the top of recent trading ranges.
The U.S. 10-year Treasury yield rose to 2.3590 percent which nears the top end of a trading range established since early May.
The dollar reached a one-month high against a few currencies and is on track to posts its best weekly performance later this year on hopes that Trump’s administration may be gaining progress on tax reforms.
The biggest U.S. tax overhaul in three decades was proposed by Trump on Wednesday. The plan offers to cut taxes for most Americans but provokes criticism that the plan favors the elite and companies that could expand the U.S. budget deficit.
The proposal faces struggles in the U.S. Congress, with Democrats against it and Trump’s own Republican Party divided over it.
“We are in correction mode on the dollar as there is really nothing fundamental that has changed for the U.S. outlook and the ambitious tax plan lacks a lot of details,” stated Viraj Patel, an FX strategist at ING Bank in London.
The dollar gained 2.5 percent since reaching a 2 1/2-year low of 91.35 in mid-September. The dollar was trading 0.24 percent higher against a basket of currencies.
Interest Rates Hike Boost Dollar
The unveiling of the plan, along with the recent statement from the U.S. central bank which includes hawkish rhetoric, has raised the probability of a U.S. rate increase by December to 70 percent in comparison with less than a third a month earlier.
This is most likely the advantageous time for the U.S. raise interest rates, Yassir Benjelloun Touimi, a portfolio manager at Dalton Strategic Partnership LLP in London, explained as he points out that short-term growth indicators look robust and the market volatility is close to record lows as well as the financial markets are healthy and is near record highs.
The Expectations that the Fed will continue to raise interest rates and Trump’s proposal has boosted the dollar against other currencies.
The EUR (€1.1764), GBP (£1.3373), and CAD (CA$1.2478) are among the currencies that are showing good progress as they are all trading higher from their worst levels seen overnight.
The Reserve Bank of New Zealand (RBNZ) noted that a weaker currency is best for dealing with “tradable inflation” as it left rates unchanged (NZ$0.7186)
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