Dollar retreats as profit-taking, falling yields hurt

The U.S. dollar fell to a two-week low against a basket of currencies on Tuesday, as traders booked profits after a strong March and as a fall in Treasury yields from recent peaks put pressure on the U.S. currency.

The U.S. Dollar Currency Index, which measures the greenback against a basket of six currencies, was 0.239% lower at 92.341, its lowest since March 23.

The dollar has risen this year, along with Treasury yields, as investors bet the United States would recover more quickly from the coronavirus pandemic than other developed nations, amid massive stimulus and aggressive vaccinations.

At 2.5%, the gain in March was the dollar’s biggest monthly increase since the end of 2016.

“I think we are seeing some profit-taking to start the new quarter,” said John Doyle, vice president of dealing and trading at FX payments firm Tempus Inc.

“Treasury yields have played a role in helping the dollar find its footing. Lower yields today would add fuel to the equity fire and diminish demand for the greenback too.”

U.S. Treasury yields fell on Tuesday, while U.S. stocks hit a fresh high, further sapping demand for the safe-haven U.S. currency.

Against the Japanese yen, the dollar slipped 0.29% to 109.855 yen, a one-week low.

The International Monetary Fund raised its outlook for global economic growth again on Tuesday, forecasting worldwide output would rise 6% this year, reflecting a rapidly brightening outlook for the U.S. economy.

The upbeat assessment follows an encouraging U.S. jobs report on Friday and a solid U.S. services activity reading on Monday.

“The uptick in sentiment is likely a result of the IMF upgrading their global growth forecasts,” said Doyle.

Speculators’ net bearish bets on the U.S. dollar fell in the latest week to the lowest since June 2020, calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday showed.

Sterling slipped on Tuesday as investors withdrew some cash after cable jumped to its highest in more than two weeks, while traders continued to bet on a speedy reopening of the British economy.

Major cryptocurrency Ethereum reached a peak of $2,151.63 on Tuesday, before paring gains.

The rise of Ethereum, which like most smaller cryptocurrencies tends to move in tandem with bitcoin, has helped the cryptocurrency market capitalization reach a record $2 trillion on Monday, data and market trackers CoinGecko and Blockfolio showed.

Dollar hovers above two-week lows

The U.S. dollar traded near its lowest in more than two weeks versus major peers on Thursday, tracking Treasury yields lower, after minutes of the Federal Reserve’s March policy meeting offered no new catalysts to dictate market direction.

Fed officials remained cautious about the risks of the pandemic – even as the U.S. recovery gathered steam amid massive stimulus – and committed to pouring on monetary policy support until a rebound was more secure, the minutes showed Wednesday.

Fed Chair Jerome Powell will speak at a virtual International Monetary Fund conference later on Thursday.

The dollar index which measures the U.S. currency against a basket of six currencies, edged lower to 92.39 in London trading, after dipping as low as 92.134 on Wednesday for the first time since March 23.

The index rallied to an almost-five-month high of 93.439 at the end of last month as the U.S. pandemic recovery outpaced that of most other developed nations, particularly in Europe.

“The Fed minutes delivered no negative surprise for risk sentiment, with the committee reiterating no need to rush into tightening of monetary conditions and further support the recovery,” said Petr Krpata, chief EMEA FX and interest rates strategist at ING.

“We expect the very accommodative Fed to eventually weigh on USD as we move into the summer – rising inflation, yet no signs of imminent rate hikes will push front-end US real rates further into the deep negative, and coupled with the recovering global economy (which should be of a more synchronized nature in 2H21), should weigh on USD.”

The benchmark 10-year Treasury yield was around 1.647% on Thursday, after dipping below 1.63% overnight. It hit 1.776% late last month, its highest in more than a year.

The S&P 500 eked out a modest gain on Wednesday, moving mainly sideways since surging to a record high to start the week.

The chief currency strategist at Citigroup Global Markets Japan, Osamu Takashima, said that the market’s direction is difficult to call, but expects the next move for the dollar to be lower.

“Current market sentiment is mild risk-on, and under such circumstances the dollar will weaken gradually – but no big moves,” he said.

The retreat in U.S. yields has also removed a driver for dollar gains, he added.

The dollar weakened to 109.49 yen , consolidating after retreating from 110.97, its highest in more than a year, reached on March 31.

The euro traded 0.1% lower at $1.1863, after rebounding from $1.1704, its lowest in almost five months, touched on March 31.

“The vaccination progress in the Eurozone is significantly lagging that of the U.S., and coronavirus infection rates in the Eurozone are on the rise again,” Commonwealth Bank of Australia strategist Joseph Capurso wrote in a client note.

“As such, EUR/USD is vulnerable to a move lower towards 1.1700 in the near‑term.”

Dollar slides, consolidates recent gains, ahead of U.S. payrolls data

The dollar fell on Thursday, consolidating recent gains that pushed it to nearly three-year highs during the first quarter, but the outlook remained upbeat in the wake of improving economic prospects backed by the Biden government’s more than $2 trillion stimulus plan.

Investors are now looking to Friday’s non-farm payrolls report to confirm their positive view on the dollar and the economy.

The dollar gained 3.6% against a basket of six currencies in the first three months of the year, its best quarterly performance since June 2018, with investors betting on a swift and robust economic recovery.

“We’re seeing the U.S. growth outlook just crushing Europe’s,” said Edward Moya, senior market analyst, at online FX trading platform, OANDA.

“The Biden administration is not even three months on the job and it’s about to deliver its second multi-trillion-dollar stimulus package. We’ll probably see the U.S. run hot and that’s probably driving the rise in Treasury yields including the dollar.”

U.S. President Joe Biden announced on Wednesday his long- awaited $2 trillion-plus job plan, including $621 billion to rebuild infrastructure.

Meanwhile, U.S. data showed strong growth prospects.

A report on the U.S. manufacturing sector showed a stronger-than-expected reading of 64.7 in March, the highest in more than 37 years. That was offset, though, by slowing construction spending, which fell 0.8% in February, and an increase in U.S. jobless claims in the latest week.

In afternoon trading, the dollar index slipped 0.3% to 92.933.

The dollar though slipped a bit after the jobless claims report, with claims of 719,000 in the week ended March 27.

The dollar index’s gains in the first quarter came as the euro, the biggest component in the index, struggled on concerns the euro zone’s recovery is being hampered by a third wave of COVID-19 infections.

France’s President Emmanuel Macron ordered the country into its third national lockdown and said schools would close for three weeks. The euro zone also lags the United States in vaccination programs.

Sentiment toward Europe, though, received a boost when data showed euro zone monthly factory activity growth galloped at its fastest pace in the nearly 24-year history of a leading business survey.

The euro was last up 0.3% at $1.1768.

The dollar was down 0.1% against the yen at 110.61 yen, after ending March with its biggest monthly gain since November 2016. It rose as high as 110.97 on Wednesday, the highest in a year. The U.S. non-farm payrolls report is the major data release this week, with economists expecting an increase of about 650,000 jobs in March.

“Considering the recent price action, the risk of a selloff in the U.S. dollar is elevated if the jobs report fails to meet expectations,” said Matt Weller, global head of market research at FOREX.com and City Index.

“In that scenario, the beaten-down euro/dollar could have room to recover back toward its 200-day (exponential moving average) and the previous support level near $1.1830 through early next week.”

In observance of Good Friday, Reuters will not be putting out market reports during the European hours.

Dollar holds advantage on economic optimism, euro looks vulnerable

The dollar traded near multi-month highs against most major currencies on Friday, supported by a wave of optimism due to improving U.S. economic data, the rollout of coronavirus vaccines, and rising Treasury yields.

The euro was in focus ahead of data on German business sentiment due later in the day, but the outlook for the common European currency has soured due to renewed coronavirus lockdowns and the slow pace of vaccinations across the European Union.

The greenback has more room to rise against the euro, but its gains against other currencies in the past few weeks have been so rapid that some analysts are warning against chasing the dollar higher from current levels.

“The euro has broken through the 200-day moving average, and that is a clear sign that it will continue to go lower,” said Minori Uchida, head of global markets research at MUFG Bank in Tokyo.

“The yen is getting strong on some of the crosses, which will cap dollar/yen. Yields have supported the dollar, but this move could start to run out of steam.”

Against the euro, the dollar was quoted at $1.1776, close to its strongest since November last year.

The dollar bought 109.21 yen, which is near its highest since June.

The greenback traded at 0.9396 Swiss franc, holding onto a 0.5% gain from the previous session.

One notable exception to the dollar’s gains was the British pound <GBP=D3>, which edged up to $1.3747 after rising 0.4% on Thursday. Data due later on Friday that is forecast to show a rebound in British retail sales could give the pound a further boost.

U.S. jobless claims fell to a one-year low last week and President Joe Biden said he will double his vaccination rollout plan after reaching his previous goal of 100 million shots 42 days ahead of schedule, both of which support optimism in the dollar.

The dollar index against a basket of six major currencies stood at 92.788, close to a four-month high.

Traders will look to data on U.S. personal consumption due later on Friday for further hints about the strength of the U.S. economy.

During European trading Germany’s Ifo survey is expected to show an improvement in business morale. But this is unlikely to halt the euro’s slide, because worries about the European Union’s slow vaccination rollout and bickering with former member Britain over vaccine exports have become a dominant theme, traders said.

The Australian and New Zealand dollars rebounded from sharp losses earlier in the week.

The two currencies are likely to remain supported because their relative success in limiting the economic fallout caused by the coronavirus pandemic, analysts said.

U.S. dollar wallows near one-week low as bond yields retreat

The dollar index wallowed just north of the 91.364 level touched overnight for the first time since Feb. 4. It has dropped around 0.6% this week, after retreating from a more than three-month high of 92.506 reached Tuesday.

The gauge remains 1.6% higher this year as it tracked benchmark 10-year Treasury yields from below 1% to as high as 1.625% at the end of last week, before their retreat to around 1.5% currently.

A benign consumer price index reading this week helped allay fears that increased fiscal stimulus and sustained ultra-easy monetary policy could lead the U.S. recovery to overheat.

Weekly employment data overnight, meanwhile, added to positive signals from the jobs market, as President Joe Biden signed his $1.9 trillion pandemic relief bill into law.

“Risk sentiment is back in the ascendancy,” Ray Attrill, head of forex strategy at National Australia Bank, wrote in a client note.

“A 1.5% rather than 1% risk-free rate is evidently no longer a problem for risk assets,” although for the dollar, “it still looks a bit premature to call a resumption of the 2020 downtrend with any degree of conviction.”

The Aussie traded at $0.77865, on the cusp of the one-week high of $0.7793 reached Thursday. New Zealand’s kiwi changed hands at $0.7223, near the one-week high of $0.7240 from overnight.

The euro also traded close to a one-week high of $1.1990.

On Thursday, the European Central Bank said it was ready to accelerate money-printing to keep eurozone yields down.

The dollar consolidated at around 108.60 yen, another safe-haven currency, after pulling back from a nine-month high of 109.235 reached on Tuesday.

Bitcoin last traded at $57,185.71, up more than 12% for the week, after topping $58,000 on Thursday for the first time since it set a record high at $58,354.14 on Feb. 21.

U.S. dollar at one-week lows after benign inflation data

The dollar languished near one-week lows on Thursday after benign data on U.S. consumer prices and a decline in Treasury yields led some investors to trim bets on a rapid acceleration in inflation.

The euro was in focus ahead of a European Central Bank meeting later in the day where policymakers are expected to send a message that they will prevent bond yields from rising further and harming the bloc’s economic outlook.

The dollar index against six major currencies was flat at 91.79 after hitting a one-week low of 91.75 earlier in Asia as data showed U.S. core consumer price growth slowed slightly in February.

Against the euro, the dollar was quoted at $1.1932 per dollar, nursing a 0.2% loss from the previous session, while versus the safe-harbor Swiss franc, the greenback bought 0.9299 franc.

“The CPI was a useful reminder to market participants that U.S. inflation is still quite soft,” said Joe Capurso, currency analyst at Commonwealth Bank of Australia.

“It’s going to take a lot to get it up to the Federal Reserve’s target. Mainly, financial markets got too bullish too quickly about the Fed starting a rate hike cycle.”

The dollar and U.S. Treasury yields have been rising steadily due to expectations that the Fed’s loose monetary policy and fiscal stimulus will stoke inflation. The yield on the benchmark 10-year Treasury was at 1.528% on Thursday after hitting a one-year high of 1.626% last week.

Focus later in the day will be on an auction of 30-year U.S. Treasuries after an auction of 10-year notes on Wednesday drew sufficient demand, easing concerns about investors’ ability to absorb an increase in debt needed to finance the response to the pandemic.

Overall, analysts said sentiment for the dollar remained fairly positive as the U.S. economy recovers from the Covid-19 pandemic and as President Joe Biden’s $1.9 trillion stimulus bill won final approval in Congress.

The British pound bought $1.3935 after rising 0.3% on Wednesday.

The yen was the only major currency to cede ground to the dollar, falling about 0.2% to 108.55 yen.

Investors have been testing the ECB’s resolve to rein in rising bond yields. So far, the euro zone’s central bank has refrained from large-scale market intervention, and policymakers are divided on whether one is warranted ahead of their meeting on Thursday.

Policymakers have also expressed concern about strength in the euro, although a recent weakening of the currency has lowered expectations about major policy changes.

“With euro strength no longer a pressing issue and higher bond yields in focus instead, the ECB meeting should not be a risk event for the euro,” ING analysts said in a note.

Elsewhere, the Australian and New Zealand dollars rose for the third straight session against the greenback as sentiment toward the antipodean currencies remains strong due rising commodity prices and expectations for an acceleration in global trade.

Dollar ascendant as Powell stays dovish course; risk currencies slide

The dollar held firmly near three-month highs on Friday after surging overnight as Federal Reserve Chair Jerome Powell stuck with dovish rhetoric despite a recent spike in bond market volatility.

The U.S. currency soared the most in a month after Powell said the violent sell-off in Treasuries last week was “notable and caught my attention” but was not “disorderly” or likely to push long-term rates so high the Fed might have to intervene more forcefully.

Instead, he reiterated a commitment to maintain ultra-easy monetary policy until the economy is “very far along the road to recovery.”

Powell’s remarks reignited selling in Treasuries, with the benchmark 10-year Treasury yield jumping back above 1.5% and rising as high as 1.5830% in Asia. Last week, it had soared to a three-month top of 1.614%.

Riskier currencies including the Australian and New Zealand dollars slid along with stocks as investor sentiment again turned sour.

“Quite a night for market volatility, with the bond market the centre of attention,” Ray Attrill, head of forex strategy at National Australia Bank in Sydney, wrote in a client note.

“The market was seemingly looking for Powell to push back harder on the recent increase in yields.”

The dollar index was little changed at 91.660 early in the Asian session after gaining 0.7% overnight.

The euro slipped 0.1% to $1.19635, a one-month low, following a 0.7% slump overnight.

The dollar eased slightly to 107.835 yen, but remained near the multi-month high at the cusp of 108 touched during Thursday’s 0.9% surge.

The safe-haven dollar has been supported both by the higher Treasury yields themselves, and the upswing in risk aversion the bond rout has fomented.

Impending U.S. fiscal stimulus is adding fuel to expectations of higher inflation, as the accelerating rollout of COVID vaccines heightens optimism for an economic recovery.

While many analysts expect commodity-linked currencies to climb as economies reopen after the pandemic, they have been hurt by the souring mood.

The Aussie weakened 0.3% to $0.7705, extending Thursday’s 0.7% drop. The kiwi fell 0.2%, adding to its 0.8% slide overnight.

Dollar holds advantage over low-yielders, Australian dollar looks to RBA

The dollar stood firm against its low-yielding peers on Tuesday on bets of a faster economic recovery and greater tolerance of higher U.S. bond yields, while the Australian dollar looked to guidance from the country’s central bank.

The dollar index last stood at 91.014, having hit a three-week high of 91.139 overnight, with its February peak of 91.600 seen as a possible next target.

The U.S. currency rose to 106.89 yen on Monday, its highest since late August, and last stood at 106.84 yen while the euro dipped to $1.2049, near its lowest level in almost two weeks.

 

The common currency was under pressure as top officials from the European Central Bank sounded alarm over rises in bond yields.

President Christine Lagarde said on Monday the ECB will prevent a premature increase in borrowing costs for firms and households.

Policymaker Francois Villeroy de Galhau was even more explicit, saying some of the recent rises in bond yields were unwarranted and that the ECB must push back using the flexibility embedded in its bond purchase program.

Traders were quick to sense the marked difference in tone between the ECB and the Federal Reserve.

Richmond Federal Reserve President Thomas Barkin said on Monday the uptick in long-term bond yields so far seems to suggest an adjustment to stronger growth and inflation outlook.

Atlanta Fed President Raphael Bostic said last week that bond yields remain comparatively low, while Federal Reserve Chair Jerome Powell has also shown no undue concerns about rising bond yields.

“Central banks continue to take diverging views on the signals sent by the recent rise in yields. The U.S. Fed is taking it as a positive signal,” Tapas Strickland, director of economics and markets at National Australian Bank in Sydney, said in a note.

The U.S. economic recovery is also seen on a firmer ground, already bolstered by prospects of a $1.9 trillion relief package from the Biden Administration and successful rollouts of COVID-19 vaccinations.

A survey by the Institute for Supply Management (ISM) released on Monday showed U.S. manufacturing activity increased to a three-year high in February amid a surge in new orders.

As a result, the gap between U.S. and European bond yields has been widening in a boost to the dollar; the 10-year yield differentials between U.S. Treasuries and German Bunds reached 1.76% on Monday, the highest in a year.

The safe-haven Swiss franc softened to a near four-month high of 0.9160 franc per dollar overnight and last stood at 0.9146.

Against the euro, the franc changed hands at 1.1023 to the euro, not far from a 1-1/2-year low of 1.1098 touched last week.

The Australian dollar traded at $0.7774, having risen 0.75% on Monday on rising risk appetite, with focus now squarely on the looming policy meeting of the Reserve Bank of Australia.

The RBA’s monthly policy meeting on Tuesday is widely expected to reinforce its forward guidance for three more years of near-zero rates.

It has stepped up bond buying following the global bond market rout, and any further warning against rising yields could cap its latest rebound, analysts said.

“The market has been in a euphoria for some time and everybody says the dollar will weaken on rising risk appetite. But oil prices dipped yesterday and gold also slipped. If commodity markets are waking up to the reality, then we could see some weakness in commodity-linked currencies,” said Makoto Noji, chief FX strategist at SMBC Nikko Securities.

Elsewhere, bitcoin also jumped back in tandem with gains in risk assets, trading at $49,129 and pulling away from Sunday’s three-week low of $43,021.

Dollar gains on higher yields, risky currencies weaken

The U.S. dollar gained on Friday as U.S. government bond yields held near one-year highs, while riskier currencies such as the Aussie dollar weakened.

Yields have surged as an acceleration in the pace of vaccinations globally and optimism over improving global growth bolster bets that inflation will rise. That has also led investors to price in earlier monetary tightening than the Federal Reserve and other central banks have signaled.

The dollar move is “a function of what’s happening on the yields side,” said Jeremy Stretch, head of G10 FX strategy at CIBC World Markets. The 10-year yield briefly climbed above the S&P 500 dividend yield on Thursday, he noted, indicating “uncertainty that is writ large.” The dollar index rose 0.59% to 90.847, its highest level in a week.

It gained against the yen, touching 106.69 for the first time since September.

The benchmark 10-year Treasury yield surged above 1.6% on Thursday for the first time in a year after a weak seven-year note auction. It was last at 1.45%.

U.S. yield increases have accelerated this month as Fed officials refrain from expressing concern about the yield gains.

“The Fed has not really hinted that that’s making them uncomfortable, so the bond market’s going to push that,” said Edward Moya, senior market analyst at OANDA in New York. “That’s really dictating this move in the dollar.”

Riskier currencies retreated. The Aussie fell 1.99% to $0.7713, after topping $0.80 on Thursday for the first time since February of 2018.

Marshall Gittler, head of research at BDSwiss, said the Australian dollar was underperforming despite the market signaling higher growth, likely because the country’s central bank’s yield curve control policy would restrain its bond yields from moving much higher. That, in turn, could limit the attractiveness of the currency.

The greenback is likely to continue to benefit from safe- haven flows if risk appetite continues to worsen, and emerging market currencies may be among the biggest losers.

“There’s a big, big concern that this reflation risk is going to get out of hand and that’s going to really pummel the emerging market currencies, and I think you’re going to see that investors are going to need to reassess their dollar positions,” said Moya.

Data on Friday showed U.S. consumer spending increased by the most in seven months in January, while price pressures were muted.

U.S. jobs data for February released next Friday is the next major economic focus.

Investors are also waiting on details of the U.S. fiscal stimulus bill, which is expected to be passed in the coming weeks.

The Democratic-controlled House of Representatives on Friday was poised to push through President Joe Biden’s $1.9 trillion coronavirus aid package, although it looked unlikely to be able to use the bill to raise the minimum wage nationwide.

The euro dipped 0.79% to $1.2078 after touching a seven-week high of $1.2244 on Thursday.

Bitcoin fell 0.32% to $46,946. Ethereum dropped 0.7% to $1,468.

Dollar pummeled, Aussie soars as reflation trades grip FX markets

The dollar remained at multi-year lows against the Antipodean currencies and held near a one-month low versus the euro as reflation trades gripped the currency markets on Wednesday.

Federal Reserve Chair Jerome Powell reiterated on Tuesday that U.S. interest rates will remain low and the Fed will keep buying bonds to support the U.S. economy. The dollar resumed its decline towards the lows recorded at the start of the year after a brief rally in late January.

Money flowed from safe havens like the dollar, Swiss franc and the Japanese yen towards currencies expected to benefit from a pick-up in global trade, and to countries like Britain that are recovering quickly from the coronavirus pandemic.

 

“The extension of weakness in safe haven currencies such as the Swiss franc appears consistent with building confidence in the global economic recovery,” MUFG strategists said in a note.

Some notable moves were seen in the currency markets this week. The franc weakened below 1.10 francs per euro for the first time since the end of 2019, with a global rise in bond yields also curtailing the appeal of the safe-haven currencies.

The dollar’s weakness in recent days has been more remarkable as it comes against the backdrop of a broader rise in U.S. yields. Benchmark 10-year borrowing costs are holding near their highest in nearly a year.

The dollar index against a basket of six major currencies was at 90.111, near the six-week low of 89.941 it reached overnight.

“Risk appetite has improved a lot, and this leaves the dollar at a big disadvantage,” said Junichi Ishikawa, foreign exchange strategist at IG Securities.

The Australian dollar, which tends to benefit from rising metal and energy prices, rose to a three-year high of $0.7945 before paring gains to trade 0.1% stronger at $0.7914.

The euro bought $1.21495, close to the one-month high of $1.2180 set overnight. The British pound climbed past $1.42 overnight for the first time since April 2018.