U.S. dollar gains after Fed moves to lift key bank leverage rule

Fed says it will let bank ratio expire on March 31

U.S. currency is seen in this picture illustration taken March 6, 2020. Image used for illustrative purpose

U.S. currency is seen in this picture illustration taken March 6, 2020. Image used for illustrative purpose

REUTERS/Mike Segar/Illustration

NEW YORK: The dollar extended gains against major currencies on Friday, hitting a more than one-week high, as investors digested a move from the Federal Reserve to lift a key bank leverage ratio that has pushed U.S. Treasury yields off their lowest levels of the day.

The greenback in recent weeks has risen in line with higher Treasury yields. Since early January, the dollar index, a gauge of its value against six major currencies has gained about 3.3%, while the benchmark U.S. 10-year note has climbed about 80 basis points.

The Fed announced on Friday that it will let a temporary bank leverage rule exemption expire on March 31. The Fed had put the rule in place to encourage bank lending as American households and businesses were hurt by lockdowns.

The dollar index was last up 0.3% on the day at 92.138 and on track for around a half of a percent gain over the week.  It had fallen sharply in the wake of the Fed's announcement about its loose policy stance on Wednesday.

"I see the dollar being a bit firmer today but not outside of its recent ranges," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

"The underlying macro force is still a divergence, no one can keep up with aggressiveness of U.S. monetary and fiscal policy."

The U.S. 10-year yield rose on Friday after the Fed decision on the leverage rule, and was last up at 1.737. It hit a more-than-one-year peak of 1.754% in the previous session.

The Fed pledged this week to press on with aggressive monetary stimulus, saying a near-term spike in inflation would prove temporary amid projections for the strongest U.S economic growth in nearly 40 years. 

"The disappointment about the Fed's unchanged dovish approach only put the dollar under pressure momentarily," currency analysts at Commerzbank said in a note.

The euro dipped 0.3% at $1.188, giving up early gains versus the dollar amid concerns about further coronavirus lockdowns in Europe, after France imposed a new four-week lockdown from Friday in 16 regions badly hit by the health crisis.

The yen was roughly flat at 108.93 Yen after the Bank of Japan widened its target band for the benchmark yield in a decision that was in line with market expectations. 

In the cryptocurrency market, bitcoin traded 1.2% higher at around $58,382 after briefly topping $60,000 again the previous day.

(Reporting by Jessica DiNapoli in New York, Additional reporting by Iain Withers in London; Editing by Chizu Nomiyama and Marguerita Choy) ((Jessica.dinapoli@tr.com))

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