TOKYO- The dollar softened to a two-week low against a basket of currencies on Wednesday after US bond yields declined as traders rolled back aggressive expectations that the Federal Reserve will tighten its policy earlier than pledged.
The dollar index wallowed near a two-week low of 92.314, slipping further from a five-month high of 93.439 set on March 31.
The euro rallied to a two-week high of $1.18785 and last stood at $1.1871. The common currency jumped almost a pence against the British pound overnight to trade at 85.90 pence, its biggest gain since Dec. 10.
The dollar changed hands at 109.77 yen, extending its retreat from a one-year high of 110.97 touched a week ago.
The dollar’s decline came as investors recalibrated their expectations that the Federal Reserve will tighten its policy earlier than it has suggested.
Financial markets have expected accelerating US economic growth and inflation could force the Fed to abandon its pledge earlier, with interest rate futures pricing in a rate hike as early as late 2022 earlier this week.
The five-year US Treasury yields, however, dropped sharply to 0.874 percent after hitting a 14-month high of 0.988 percent on Monday.
The five-year Treasury yield is now seen as a major barometer of how much faith investors have in the Federal Reserve’s pledge that it does not expect to raise interest rates until 2024. – Reuters