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US dollar hits two-week high after tech selloff

USD - United States Dollar

The US dollar climbed to a two-week high, buoyed by a selloff in tech stocks and correction in treasury yields. The dollar’s bounce was partially sparked by comments of the possibility of an earlier than expected rate hike. The dollar index hit 91.436, its highest since April 19.

Former Federal Reserve chair Janet Yellen, who is currently treasury secretary, unnerved investors yesterday by suggesting the likelihood of higher interest rates if President Joe Biden’s stimulus plans send inflation too high.

The dollar was little changed after a strong US private payrolls report for April. 742,000 private sector jobs were added last month, according to the ADP report. A more comprehensive jobs report on non-farm payrolls is due on Friday.

Key Movers

The rise in the US dollar pushed down the euro briefly below the $1.20 mark today, but it has steadied at that mark at the time of writing. Economists believe the Eurozone will be amongst the sharpest recoveries globally and that there is over EUR 170bn readily available in consumer savings, ready to spend once lockdowns have been lifted, which could have a positive impact on the euro.

The UK is beginning to face unexpected Brexit repercussions just a week after the post-Brexit trade deal being finalized, with France asking their European counterparts to reconsider the approval of the deal. It has also been reported that Biden will actively dismiss any UK-US bumper trade deals and put them on the 'back burner'. GBPUSD struggled to break $1.40 before the Brexit deal was finalized. These roadblocks could seriously knock the pound in the short term.

The Australian dollar tracked lower through trade yesterday as investors largely ignored the Royal Bank of Australia statement and rate announcement as policymakers offered nothing that was not already priced in. The board opted to leave rates on hold and deferred any decision on bond targets and QE purchases until the July meeting. Heightened pandemic concerns, growing inflation concerns and rising US treasury yields open the door for a break below support at 0.7680, while resistance at 0.78 remains intact.

Expected Ranges

EUR/USD: 1.198 - 1.203 ▼

GBP/USD: 1.384 - 1.392 ▲

AUD/USD: 0.768 - 0.774 ▲

USD/CAD: 1.226 - 1.233 ▼