Dollar nurses losses as ‘mean reversion’ trade widens

Dollar nurses losses as ‘mean reversion’ trade widens

LONDON - The dollar nursed losses near a one-month low on Wednesday as strong demand at a U.S. bond auction fuelled a widespread drop in Treasury yields, reducing the interest rate advantage the greenback held over other major currencies.While rate differentials between U.S. and German benchmark 10-year yields have narrowed slightly to 193 bps from more than 200 bps at the start of the month, they remain considerably higher than 150 bps seen at the start of the year.April has been a month of "mean reversion" trades among major currencies with the yen and the euro recovering most of their sharp losses sustained in March. Even commodity currencies including the Aussie and the kiwi dollar have bounced strongly.Compounding the dollar's losses has been a broad pick-up in inflationary pressures that showed U.S. consumer prices rising by the most in more than 8-1/2 years in March at 2.6%.But that pick-up has failed to translate into expectations of an acceleration in policy tightening and on the contrary has boosted demand for U.S. debt as investors bet inflation pressures are transitory.December 2022 futures contracts are signalling a slower rise in implied interest rates, reflecting the Fed's resolve to keep policy on hold."The Fed's continued