Dollar Gains Amid Higher Yields as Traders Look Past Fed Views

The dollar’s fighting its way back after the Federal Reserve sent it reeling last week with cuts to its projections for interest rates, inflation and growth.

The greenback gained the most in a week as Treasury yields rose from six-week lows after jobless claims dropped to the lowest level since mid-February. The yen advanced to the strongest level in more than a month as Saudi Arabia and its allies bombed targets in Yemen, increasing demand for haven assets. The Canadian dollar gained as the price of crude oil rose on concern supplies could be interrupted.

“We’ve had a big shift in terms of U.S. dollar strength coming back into the market,” Camilla Sutton, chief foreign-exchange strategist at Bank of Nova Scotia, said by phone from Toronto. “The 10-year trying to break back above 2 percent is an important piece. These markets are highly correlated right now, in the sense that oil, Treasuries, equities as well as foreign-exchange markets are really all being driven by those big themes.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, appreciated 0.3 percent to 1,189.08 as of 5 p.m. New York time after sliding as much as 0.6 percent.

The yen gained 0.3 percent to 119.19 per dollar and reached 118.33, the strongest level since Feb. 20. The Canadian dollar gained 0.3 percent to C$1.2483 versus the greenback.

Benchmark U.S. 10-year Treasury yields added six basis points, or 0.06 percentage point, to 1.99 percent, according to Bloomberg Bond Trader data. They touched 1.85 percent Wednesday, the lowest level since Feb. 6.

Dollar Gains

The Bloomberg Dollar Spot Index reversed losses as jobless claims fell by 9,000 to 282,000 in the seven days ended March 21, the least since the week ended Feb. 13.

The gains were supported by Federal Reserve Bank of Atlanta President Dennis Lockhart’s assertion that the economy can handle moving to a higher-rate environment.

“U.S. dollar buyers appear to have reemerged,” Daniel Katzive and Vassili Serebriakov, foreign-exchange strategists at BNP Paribas SA, said in a note. The dollar “benefited from the continued grind higher in U.S. front-end yields, at least in part attributable to continued recovery in crude prices but also to hawkish comments from Atlanta Fed President Lockhart.”

The greenback is still down 0.5 percent this week after tumbling 2.2 percent last week, the biggest drop since October 2011, as the Federal Open Market Committee revised it forecasts downward.

Haven Demand

King Salman Bin Abdulaziz Al Saud ordered the air strikes against Shiite Houthi positions after an “appeal” from Yemen’s President Abdurabuh Mansur Hadi, Saudi Ambassador Adel al-Jubeir said in Washington. Saudi Arabia, the world’s top oil exporter, has accused Iran of fomenting unrest in Yemen, which has emerged as the latest ground for a proxy confrontation between the two regional rivals.

West Texas Intermediate crude futures jumped as much as 6.6 percent to $52.48, while the VIX volatility index -- sometimes called the fear gauge -- surged 13 percent on Wednesday and is up 21 percent this week.

The yen has gained 5.7 percent this year among a basket of 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes, the most after the Swiss franc’s 8.9 percent jump.

“The yen will remain pretty well-bid until there is a pause for breath in the risk-off dynamics,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.

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