Dollar’s bounce fades as risk appetite rises

The dollar was headed for its worst week of the year on Friday, as investors cheered in the Joe Biden administration by buying riskier currencies and refreshed bets that a pandemic recovery could push the greenback lower still.

Against the euro, the dollar is down almost 0.8% this week and it touched a week-low of $1.2173 per euro on Friday. The dollar index has fallen by the same weekly margin, and was steady at 90.075 early in the Asia session.

The euro had found some support from the European Central Bank keeping policy steady and accommodative.

Scandinavian currencies have led the charge higher, with the Norwegian crown up 1.8% for the week, helped by Norges Bank’s decision to hold its policy rate steady, albeit at zero. The Swedish crown is up 1.4% for the week.

The risk-sensitive Antipodean currencies have also been gainers, with the Australian dollar up 0.8% and the kiwi climbing more than 1% over the week so far.

Sterling rose to a 2-1/2 year high of $1.3745 overnight on hopes Britain’s vaccine roll-out can usher in a rebound in growth. It held at that level on Friday, up 1% for the week.

The sentiment-driven moves have eroded gains made by the U.S dollar since the Democrats won control of the U.S. Congress earlier this month. The dollar had risen along with U.S. Treasury yields on expectations of more fiscal stimulus and government borrowing under a Biden administration.

“It’s pretty hard to run away from the enduring strong negative correlation between U.S. equity performance and the U.S. dollar,” said Ray Attrill, head of FX strategy at National Australia Bank, as stock market sentiment spills over.

“I think the market is far happier focusing on the potential positives of the Biden administration’s proposed fiscal plans…rather than any of the negatives,” he said.

“For the time being, while it seems to be onwards and upwards for stocks, it’s put the dollar back on the back foot.”

The dollar was steady against the Japanese yen on Friday at 103.58, but has lost 0.3% over the week.

A heavy sell-off in Bitcoin saw the cryptocurrency drop 5% in Asia trade on Friday to hit an almost three-week low of $28,800.

Later on Friday, preliminary purchasing managers’ index figures are due across Europe and the United States, and weakness is expected as fresh waves of coronavirus infection have driven new lockdowns and curtailed growth.

Dollar on back foot as Biden optimism bolsters riskier currencies

The dollar held losses versus most major peers on Thursday as optimism that a massive U.S. stimulus package under the new Joe Biden administration will bolster growth sapped demand for safe-haven currencies.

Riskier commodity currencies remained higher after U.S. stocks rose to new records overnight as Biden, who has laid out plans for a $1.9 trillion pandemic relief package, was sworn in as President.

The dollar tumbled to a three-year low against its Canadian counterpart on Wednesday after the Bank of Canada opted not to cut interest rates.

“Risk sentiment is quite positive right now and we expect it to remain so this year, with growth expected to rebound quite strongly,” said Shinichiro Kadota, senior currency strategist at Barclays Capital in Tokyo.

The Canadian dollar and Norwegian crown are likely to outperform, while European currencies lag, he said.

The greenback should also strengthen this year as the United States recovers faster than most other countries, he added.

The U.S. currency slipped 0.1% to C$1.2623 in early Asian trading, declining for a third day and touching a three-year low at C$1.2607 overnight.

The dollar slid 0.2% to 8.48 Norwegian crowns, also a third day of declines.

The Aussie dollar rose 0.1% to 77.505 U.S. cents, adding to a 0.7% rally in the previous session. Australia boasted another solid rise in employment in December, data released Thursday showed.

Biden was sworn in as the 46th president of the United States on Wednesday, vowing to end the “uncivil war” in a deeply divided country reeling from a battered economy and a raging coronavirus pandemic that has killed more than 400,000 Americans.

North of the border, the Bank of Canada said Wednesday that the arrival of a COVID-19 vaccine and stronger foreign demand is brightening the economic outlook in the medium term, opting to hold its key overnight interest rate at 0.25%. Money markets had been watching the prospect of a so-called micro rate cut of less than 25 basis points.

The Japanese and European central banks decide on policy Thursday, with no change expected.

The dollar was mostly flat at 103.59 yen on Thursday, another safe haven currency, after sliding to a two-week low of 103.45 overnight.

The euro gained 0.2%, reversing a similar decline from the previous session, to trade at $1.21245.

European countries are struggling to contain the novel coronavirus amid worries that a new variant could lead to more stringent lockdowns and more economic pain.

The dollar index slipped 0.1% to 90.335, after closing almost unchanged on Wednesday.

Dollar retreats from one-month high as traders eye Biden’s forex policy

The dollar slipped from close to its highest in nearly one month on Tuesday as caution set in before U.S. Treasury Secretary nominee Janet Yellen testifies later, with traders keeping a close eye on the policies of the incoming Joe Biden government.

The greenback weakened against most major peers as stocks in Asia rallied, lifting risk sentiment and curbing demand for safe-haven currencies like the dollar and Japanese yen.

The dollar index slipped about 0.1% to 90.708 in the Asian session, a day before U.S. President-elect Joe Biden is set to be inaugurated.

On Monday, the gauge ended 0.1% lower after earlier climbing to 90.94 for the first time since Dec. 21, as the Wall Street Journal reported Yellen will affirm a more traditional commitment to market-set currency rates in a Senate testimony on Tuesday.

That’s in stark contrast to outgoing President Donald Trump, who often railed against dollar strength.

The greenback has started the year with a near 2% rally against major peers, supported by a rise U.S. Treasury yields in response to Biden’s plan for a $1.9 trillion pandemic relief package.

The dollar fell close to 7% last year on expectations U.S. monetary policy would stay ultra-loose and amid hopes for a post-pandemic global recovery.

Many analysts expect the dollar to resume its march lower this year.

“We’ve seen comments from Janet Yellen that she won’t be pursuing a weak dollar policy per se, but that doesn’t mean that the overall impact of Fed policy won’t keep the dollar weakening,” said Michael McCarthy, chief strategist at broker CMC Markets in Sydney.

“I suspect what we’ve been seeing in the dollar at the moment is a minor corrective rally in an overall downtrend.”

The greenback has also been supported recently by an unwinding of bearish bets, with data showing that hedge funds piled up the biggest net short position since May 2011 in the week ended Jan. 12. Such large positions suggest that traders would be relatively more inclined to reduce their positions than add to already big bets.

The euro rose 0.2% to $1.2095, after dipping to $1.2054 for the first time since Dec. 2 on Monday, in subdued trading with U.S. markets closed for Martin Luther King Jr. Day.

The riskier Aussie dollar rose 0.3% to 77.082 U.S. cents, reversing a decline of more than 0.2% overnight.

The dollar gained 0.3% to 104.05 yen, although still consolidating in a narrow range after reaching a one-month high of 104.40 last week.

Yen gains, euro squeezed as recovery doubts creep in

The dollar clung to gains on Monday and the Japanese yen edged higher as softening U.S. economic data and rising global coronavirus cases kept investors cautious, while lockdowns and Italian political turmoil held the euro under pressure.

The euro dipped to a six-week low of $1.2066 in Asia and fell to a one-month low of 125.20 yen. The yen was last up about 0.2% at 103.70 per dollar and it also rose on the risk-sensitive Australian and New Zealand dollars.

The Antipodeans were soft against the greenback and the Aussie touched a one-week trough of $0.7679, while the kiwi hit a three-week low of $0.7117.

Better-than-expected Chinese economic data headed off further selling, but was not enough to shift currency traders’ mood.

The safety bid has added another layer of support for the dollar since the Democrats won control of U.S. Congress a fortnight ago, which triggered a surge in yields as investors priced in bigger stimulus from a borrow-and-spend Biden administration.

The mood soured after Friday data showed U.S. retail sales fell for a third straight month in December, stoking worries that the recovery is running into trouble as health authorities warned that the worst of the latest Covid-19 wave might be yet to come.

Europe is also facing surging cases and an Italian government that must survive crucial votes in parliament on Monday and Tuesday in order to cling to power.

The dollar index steadied after touching a one-month high and last traded at 90.827. Sterling on Monday sat near at a one-week low of $1.3567.

Nevertheless, many investors appear to be sticking in crowded dollar shorts, which hit an almost 10-year high last week, even though the bounce has carried the dollar index about 1.9% higher and pushed the euro more than 2% lower in two weeks.

“The market is in a bit of a wait and see mode debating about the dollar, in terms of whether higher U.S. yields could provide support or whether we see further decline,” said Bank of Singapore currency analyst Moh Siong Sim.

“I think the balance of risks is still in favor of a reflationary environment, and therefore risk sentiment should stay positive and we should see a further dollar decline.”

Elsewhere, the Canadian dollar slipped 0.2% after reports that Joe Biden plans to soon rescind permission for the Keystone XL pipeline, a project which would link oil sands in Alberta to refineries in Texas.

Later in the week, President-elect Biden is due to be inaugurated in a heavily-guarded Washington. Tensions are high after mob violence a few weeks ago.

Biden’s pick for Treasury Secretary, Janet Yellen, is expected to rule out seeking a weaker dollar when testifying on Capital Hill on Tuesday, the Wall Street Journal reported.

Dollar rebound falters as Fed’s Powell strikes dovish tone

The dollar’s rebound from a nearly three-year low faltered after Federal Reserve Chair Jerome Powell said on Thursday that interest rates would not rise any time soon.

The release of details of President-elect Joe Biden’s $1.9 trillion stimulus later that day failed to give the greenback additional support, with the main points of the plan already reported by the media.

Bitcoin continued to recover after a nearly $12,000 plunge from the record $42,000 reached last week, briefly topping $40,000 overnight.

The dollar index has rallied after reaching its lowest level since March 2018 last week, as the prospect of more stimulus weighed on U.S. government bonds, sending the benchmark 10-year Treasury yield above 1% for the first time since March.

Although many analysts predict the greenback will resume the decline that saw it slide almost 7% last year versus major peers as the global economy recovers from the pandemic, there is growing concern that the rise in yields will temper that weakness.

The dollar index was little changed at 90.26 after drifting slightly lower overnight. It rebounded to as high as 90.73 at the start of this week from as low as 89.206 on Jan. 6.

Powell said in a live-streamed interview with a Princeton University professor that the economy remains far from where the Fed wants it to be, and that he sees no reason to alter its highly accommodative stance “until the job is well and truly done.”

The central bank’s asset-buying program has weighed on the dollar as it increases supply of the currency, diminishing its value.

“Shorter term, Powell just put a lid on the U.S. dollar,” said Westpac currency analyst Sean Callow.

“The baseline case is still for a substantial acceleration in the global economy, which historically has proven to be positive for most currencies against the U.S. dollar, but I think there is potential to at least have a debate over whether the U.S. dollar will be quite as weak as people expect.”

The dollar was little changed at 103.76 yen after slipping 0.1% overnight.

The euro eased 0.1% to $1.21465, on track for a three-day decline.

The riskier Aussie dollar slid 0.1% to 77.650 U.S. cents, tempering the previous session’s 0.6% rise.

Dollar extends rebound as investors await U.S. stimulus details, bitcoin bounces

The dollar extended its rebound from near three-year lows versus major peers on Thursday, supported by higher U.S. yields, as President-elect Joe Biden prepared to outline his plans for massive fiscal stimulus.

The dollar index held onto gains made on Wednesday in early Asian trading as investors continued to unwind bearish bets. The dollar has risen in four of the past five trading sessions as the prospect of more stimulus has weighed on U.S. government bonds, sending the benchmark Treasury yield above 1% for the first time since March.

Bitcoin also held on to 10% gains made on Wednesday as it rebounded after sliding almost $12,000 from an all-time high of $42,000 hit last week.

Biden will give details on Thursday of a plan for “trillions” of dollars in pandemic relief. The 10-year Treasury yield ticked up after CNN reported the package will be around $2 trillion, adding support for the dollar.

However many analysts expect the currency’s bounce to be temporary, as a build up of bearish dollar positions are shaken out.

Longer term, they expect more U.S. stimulus to support risk sentiment, weighing on the greenback, which is traditionally considered a safe-haven.

“I think positioning in risk assets is becoming a concern, so there could be a squeeze in the dollar near-term,” said Shusuke Yamada, chief Japan FX strategist at Bank of America in Tokyo.

“I am focusing on gradual dollar weakness in 2021.”

FX speculators have been net short the dollar since mid-March, as investors’ surging appetite for riskier assets hurt demand for the greenback.

The dollar index added 0.1% to 90.431 after gaining 0.3% overnight. It fell as low as 89.206 on Jan. 6 for the first time since March 2018.

The euro slipped 0.1% to $1.21405 after sliding 0.4% on Wednesday.

The greenback advanced 0.2% to 104.075 yen, adding to a 0.1% rise previously.

Bitcoin was little changed at $37,420 on Thursday, up from as low as $30,261.13 on Jan. 11.

Interest in the cryptocurrency has been soaring as institutional investors began buying heavily, viewing it as both an inflation hedge and as exposed to gains if it became more widely adopted.

“That precipitous sell-off we saw recently, a lot of it was driven by the futures markets,” where positions became overextended and the resulting margin calls put downward pressure on the bitcoin price, said Seth Melamed, the Tokyo-based Chief Operating Officer of cryptocurrency exchange Liquid.

“On the spot markets, you just see this consistent drumbeat of buying.”

Dollar lifted as Treasury yields stabilize from drop

Stabilizing U.S. Treasury yields helped the dollar trade back in positive territory on Wednesday, though investors remained bearish on the currency’s near-term prospects.

Benchmark 10-year Treasury yields fell more than 6 basis points from a 10-month high hit on Tuesday, briefly snuffing out a three-day winning streak for the dollar. They last traded 2 basis points lower at 1.12%, helping the currency trade 0.1% higher against its peers.

The euro, having earlier made its sharpest daily gain against the greenback, lost ground to trade 0.3% lower on the day at $1.2168.

Sterling bucked the trend and climbed over $1.37 against the dollar, having been boosted the previous day by the Bank of England governor talking down the prospect of negative interest rates. It last traded flat as the dollar gained ground.

The Australian and New Zealand dollars fell 0.4% and 0.6% respectively, with the Aussie hitting $0.7740 and the Kiwi at $0.7186.

The pullback in yields pushed the dollar below 104 Japanese yen to trade at 103.95 yen, up 0.2%.

Investors maintained their bearish stance on the greenback.

“We continue to think the greenback’s downtrend should remain intact as long as global recovery prospects stay intact,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

The dollar index was 0.3% higher at 90.279 after falling 0.5% on Tuesday and is not far above last week’s close at a three-year low of 89.206.

“We think that there are really two main reasons for that (dollar not weakening now),” said Calvin Tse, North America Head of G10 FX at CitiFX.

“U.S. yields, especially at the back end, have not only moved higher, they’ve shot higher. With U.S, yields shooting higher, it really does two things: 1) it encourages more inflow into the U.S. buying U.S. rate products and 2) very sharply moving yield levels tend to not be good for high beta EM FX.”

The bond-market sell-off that has driven U.S. yields sharply higher this year and stalled the dollar’s decline was triggered by Democrats winning control of U.S. Congress at elections in Georgia last week.

Investors expect that result to usher in huge sums in government borrowing to fund big-spending stimulus plans and have figured that higher U.S. rates might make the dollar more attractive.

Mixed signals from some U.S. Federal Reserve members on how much longer policy can stay so accommodative also dragged on Treasuries.

However, strong demand at a $38 billion 10-year auction overnight and remarks from Boston Fed President Eric Rosengren and Kansas City Fed President Esther George have allayed some of those concerns ahead of a busy schedule of Fed speakers.

December U.S. inflation figures are also due at 1330 GMT, with expectations for annual core CPI to hold steady at 1.6%.

Later on Wednesday Reserve Bank of St. Louis President James Bullard is due to participate in a discussion on monetary policy at a Reuters Next Virtual Forum at 1430 GMT.

Federal Reserve Board Governor Lael Brainard and Vice Chair Richard Clarida are also due to speak on Wednesday and the Fed issues its “Beige Book” of economic indicators at 1900 GMT. Fed Chair Jerome Powell is due to speak on Thursday.

Dollar buoyed by rising U.S. yields amid new stimulus prospects

The dollar held four days of gains against major peers on Tuesday as the prospect of massive fiscal stimulus pushed U.S. yields higher.

President-elect Joe Biden, who takes office on Jan. 20 with his Democratic party in control of both Houses, has promised “trillions” in extra pandemic-relief spending.

The dollar index has rebounded from a nearly three-year low reached last week as the benchmark 10-year U.S.

Treasury yield topped 1% for the first time since March and rose as high as 1.148% overnight.

The support from rising yields has so far trumped worries that the extra spending would increase debt levels and trigger faster inflation, which ordinarily would make the greenback less attractive.

Many analysts expect the U.S. currency to resume the decline that saw the dollar index lose close to 7% in 2020 as expanded stimulus and vaccine rollouts brighten the global economic outlook. Investors tend to buy the dollar when they are looking for safer investments.

The dollar index was little changed at 90.578 in Asian trading, having risen as high as 90.73 overnight for the first time since Dec. 21. It dipped to 89.206 on Jan. 6, a level not seen since March 2018.

“It’s complicated because higher U.S. yields are giving the dollar a bounce, but stimulus could support U.S. equities, and the dollar would remain weak,” said Osamu Takashima, head of G10 FX strategy at Citigroup Global Markets Japan in Tokyo.

“In the medium-term, we remain bearish on the dollar. Dollar assets look expensive.”

Speculators in the FX market are extremely bearish on the dollar, U.S. Commodity Futures Trading Commission data released on Friday showed.

The greenback added 0.1% to 104.305 yen, after rising to a one-month high of 104.40 on Monday.

The euro was largely steady at $1.21425 after slipping to $1.21320 in the previous session for the first time since Dec. 21.

Currency markets mostly shrugged off a Democratic push to impeach President Donald Trump following last week’s siege of the Capitol.

“We do not expect U.S. political theatre to be a major driver of the USD,” Commonwealth Bank of Australia currency analyst Joe Capurso wrote in a client note.

“Market participants are looking to the policies of the Biden presidency rather than the dying days of the Trump presidency.”

“Given the USD is modestly overvalued, we expect the recent lift in the USD to be limited,” he added.

Meanwhile, China’s yuan edged up against the dollar on demand for cash ahead of next month’s Lunar New Year holiday.

Onshore spot yuan opened at 6.4770 per dollar and was changing hands at 6.4712 at midday, 81 pips stronger than the previous late session close.

Bitcoin was trading at $35,186 as its red-hot rally has faltered since it soared to an all-time high of $42,000 on Jan. 8.

Dollar bounce from 2018 low continues after U.S. jobs report

The dollar turned higher against a basket of major currencies on Friday after a dismal December U.S. payrolls raised expectations for further stimulus measures to prop up an economy battered by the coronavirus and its related government lockdown measures.

The Labor Department said nonfarm payrolls decreased by 140,000 in December, the first decline in eight months, well below expectations that called for a still-weak increase of 71,000 jobs. The unemployment rate was 6.7%. Economic data during the week leading up to Friday’s report indicated a stalling labor market.

The greenback had been climbing from a nearly three-year low on Thursday as a rise in U.S. yields helped fuel the unwinding of bearish bets on the currency, with traders taking profits against the euro in particular.

After a brief pullback after the release of the data, the greenback resumed its path higher, as expectations grew for additional stimulus measures to help buttress the economy until vaccine rollouts allow for the easing of lockdown measures.

“You would’ve thought you would get a number like this, and you would say to yourself here comes that downward pressure or weakness into play and, lo and behold, the market says you’re not right, we are going to go a little bit stronger,” said JB Mackenzie, Managing Director for Futures & Forex at TD Ameritrade in Chicago.

“You do have some expectations priced into the dollar of increased stimulus coming through, obviously the new presidency coming in as well, so expectations got priced in right off the bat so that is why you are seeing it holding.” The dollar index last rose 0.35% at 90.117 after touching a high of 90.252, it’s best level since Jan 1.

U.S. President-elect Joe Biden said the jobs report shows Americans needed more immediate relief now and that taking action now would help the economy even with deficit financing, including $2,000 stimulus checks.

The Democrats’ Senate seat wins give Biden latitude to push through more spending, which some analysts predict will fuel risk appetite and be negative for bonds and the dollar, although a strongly bearish consensus outlook for the greenback at the end of 2020 has eased somewhat.

The dollar index dropped 7% in 2020 and as much as 0.9% in the first few days of the new year on expectations of U.S. fiscal stimulus. But since hitting its lowest level since March 2018, the greenback has found some footing, climbing as much as 1.2% over two sessions.

Both the euro and the pound weakened against the dollar as it gained ground. The euro was last down 0.5% to $1.2209 while sterling was last trading at $1.3562, down 0.01% on the day.

Bitcoin hit a fresh all-time high of $41,802.84, and last rose 2.39% to $40,454.81, after smashing through $40,000 for the first time on Thursday.

Dollar downtrend takes breather amid higher yields as jobs report looms

The dollar held on to its biggest gain in more than two months against its major peers on Friday as a rise in U.S. yields triggered some unwinding of bearish bets on the currency.

The greenback bounced off a nearly three-year low, with traders taking profits against the euro in particular, following a slide in the dollar index of nearly 7% in 2020 and as much as 0.9% in the new year amid expectations of U.S. fiscal stimulus.

Democrats won effective control of the Senate this week, giving President-elect Joe Biden scope to push through more spending, which analysts say will be negative for bonds and the dollar.

The benchmark 10-year Treasury yield topped 1% on Wednesday for the first time since March.

“There were some aggressive dollar shorts being bought back,” said Bart Wakabayashi, Tokyo branch manager of State Street Bank and Trust.

“The selloff in Treasuries provided a trigger.”

Investors now await U.S. nonfarm payrolls later on Friday for clues on whether significantly more stimulus will be needed to keep the economic recovery alive.

The dollar index was little changed at 89.859 in Asian trading, after dipping to an almost three-year low of 89.206 on Wednesday. It rose more than half a percent on Thursday, but remains on track for a weekly decline.

The euro was mostly flat at $1.22605 following Thursday’s 0.5% drop.

The riskier Aussie dollar was also little changed at 77.70 U.S. cents after sliding 0.5% in the previous session.

The greenback bought 103.900 yen after gaining 0.7% to close at 103.830 in New York.

“The U.S. payrolls report might be viewed as a potential litmus test for USD bears,” TD Securities analysts wrote in a client note.

“Positioning is stretched and the backup in U.S. yields has some investors nervous. Our call for a negative print might not be large enough to trigger a liquidation in shorts, but we think a defensive posture is tactically warranted nonetheless.”

Bitcoin slid 3.3% to $36,198, and dipped as low as $36,618.36, a day after smashing through $40,000 for the first time.

The world’s most popular digital currency soared as high as $40,420 on Thursday, less than a month after crossing the $20,000 milestone on Dec. 16.