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FOREX-Dollar resumes rebound from multi-year lows

Saqib Iqbal Ahmed
·2 min read

* Dollar index trades higher

* Sterling gains on euro (New throughout, updates prices, market activity, comments to U.S. market open; previous LONDON)

By Saqib Iqbal Ahmed

NEW YORK, Jan 13 (Reuters) - The U.S. dollar advanced across the board on Wednesday, shaking off the weakness of the previous session, as it continued its recent rebound from last week's near three-year low.

A rise in U.S. Treasury yields, driven by expectations of higher government spending under the Joe Biden administration, has helped boost the battered dollar in recent sessions.

The greenback has also found support from expectations of a continued economic recovery in the United States, even as countries in Europe resort to lockdowns to fend off a second COVID-19 wave.

"You are seeing a continuance of the U.S. outperformance trade," Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

U.S. Treasury yields retreated a little on Wednesday after Federal Reserve officials pushed back against tighter monetary conditions anytime soon, even with the prospect of higher inflation ahead.

Yields on the benchmark Treasury note dropped to 1.110% in early trade, down from an almost 10-month high of 1.187% on Tuesday.

Still, the pop in the 10-year Treasury yield above 1% has put a firmer floor under the dollar, Joe Manimbo, senior market analyst at Western Union Business Solutions, in Washington, said in a note.

The U.S. dollar index was 0.344% higher at 90.335.

Data on Wednesday showed U.S. consumer prices increased solidly in December amid a surge in the cost of gasoline, though underlying inflation remained tame as the COVID-19 pandemic weighed on the labor market and the services industry.

"Overall, the firm headline December CPI gain was mostly due to an energy price pop that is extending into January, though lean readings for the core components suggest little risk of the inflation figures heating up anytime soon," Michael Englund, chief economist at Action Economics, said in a note.

Sterling hit a seven-week high against the euro on Wednesday, building on gains during the previous session when the Bank of England's governor dismissed negative rates, while optimism over the pace of Britain's vaccination rollout also offered support.

(Reporting by Saqib Iqbal Ahmed; editing by Philippa Fletcher)