Dollar Gains as Yields Rise; Sterling Calm After GDP release

Wednesday,   12-Aug-2020   01:29 PM (IST)

The dollar traded higher in early European trade Wednesday, helped by a jump in U.S. yields ahead of a massive bond auction and amid hopes that the coronavirus outbreak is coming under control. At 3:10 AM ET (0710 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 93.736. USD/JPY was up 0.3% at 106.78 and EUR/USD was down 0.1% at 1.1732. The yield on 10-year U.S. debt climbed by its most in two months overnight ahead of a record $38 billion auction later on Wednesday. The move up in yields is driven by both repositioning ahead of big issuance this week and a sense that the U.S. recovery is broadening and looking more robust, said NAB senior FX strategist Rodrigo Catril, in a Reuters report. Recent reports have suggested a decline in hospitalizations in the U.S. due to the Covid-19 virus, strengthening confidence that the pandemic is coming back under control. Elsewhere, GBP/USD dropped 0.1% to 1.3045 after official figures showed the U.K. economy shrank by a record 20.4% between April and June, the largest contraction reported by any major economy to date. This means the U.K.’s economy, the world's sixth biggest, has entered a recession, its first since the financial crisis, as the previous quarter had also seen a gross domestic production contraction. That said, sterling losses were minor as a sharp slowdown during the height of the lockdowns had been expected, and there were signs of recovery in the month of June alone when gross domestic product grew by 8.7% from May.