Daily Currency Update

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Bond yields impact forex markets

USD - United States Dollar

Central bankers in Europe and Australia last week took action to limit bond yields. Last week, the European Central Bank announced that it was stepping up its bond purchasing program. The Royal Bank of Australia followed suit. The collective moves spurred demand for equity markets and currencies other than the US dollar. The concern, of course, was inflation. But US Treasury yields reached their highest levels in 12 months, despite the moves. On the heals of the US stimulus package, the Federal Reserve’s Jerome Powell will hold a news conference on Wednesday to announce the Fed’s rate decision.

The USD dominated forex markets on Friday with the US Dollar Index (DXY) reflecting this strength. The DXY gained 0.27% against a basket of currencies, again on the back of three successful bond auctions that saw yields increase.

Key Movers

The Great British pound shed 0.5% against the world’s reserve currency to open this morning at 1.3917. With USD strength fueled by bond yields taking center stage, the GBP’s domestic docket was largely ignored despite there being some meaningful developments. Month-on-month GDP came in -2.9%, better than expected and the UK took its first step towards reopening. Caseloads have also continued to fall, and the government's vaccinations goals seem to be on track. Despite the relatively positive news, the sterling succumbed to outsized US dollar gains on Friday.

Expected Ranges

EUR/USD: 1.191 - 1.196 ▲

GBP/USD: 1.386 - 1.394 ▲

AUD/USD: 0.771 - 0.777 ▲

USD/CAD: 1.244 - 1.250 ▼