#US dollar sinks to three-month low

The dollar dropped to a three-month low on Wednesday as speculation increased that the Federal Reserve will announce later in the session it intends to keep the recent rise in bond yields in check.

Concern about possible measures or even a simple statement of intent by the Fed to hold down the yields of US government bonds has kept the US currency under pressure.

Some investors believe the Fed, which is not expected to change its interest rate policy, may decide either today or at a later date to adopt yield-curve control measures to guide 10-year Treasury yields lower.

“The Fed is definitely considering it. They will definitely say they are considering all options to meet their objectives,” said John Floyd, principal portfolio manager at Record Currency Management in New York.

“But I don’t think they will announce explicit targets. There is really no incentive to do that as the economy is just reopening and the US employment data is stronger than expected,” he added.

Earlier this month, hopes that the US economy would recover faster than expected had pushed yields of US government bonds to their highest level in nearly three months and strengthened the dollar.

In mid-morning trading, against a basket of major currencies, the dollar fell about 0.4 percent, to 96.061, after earlier sliding to 95.973, a level not seen since March 12.

The euro EUR=EBS, the pound GBP=D3 and the Swiss franc CHF=EBS all reached three-month highs against the dollar.

The euro rose as high as $1.1389, sterling reached $1.2803 and the Swiss franc $0.9514.

The dollar also fell against the yen to a two-week low of 107.26 JPY=EBS, and was last down 0.4 percent at 107.32 yen.

The greenback, though, reacted little after data showed US consumer prices fell for a third straight month in May, with the index dipping 0.1 percent after plunging 0.8 percent in April.

In the meantime, the uncertainty about the outcome of the Fed meeting is likely to keep the dollar under pressure.

US central bankers on Wednesday will also publish their first economic projections since the coronavirus pandemic plunged the country into recession.

Estimates are expected to signal a collapse in output this year and near-zero interest rates for the next few years.

In other currencies, the Australian and New Zealand dollars resumed their recent rally against the US dollar, as economic activity in both countries was restored following the lifting of coronavirus restrictions.

The Australian economy saw its dollar rise 0.5 percent, to US$0.6996, not far from an 11-month high. The New Zealand dollar also rose 0.3 percent to US$0.6532.