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.

Dollar in doldrums as Democrat sweep clears way for larger fiscal stimulus

The dollar languished near its lowest level in nearly three years on Thursday after Democrats won control of the U.S. Senate, clearing the way for a larger fiscal stimulus under President-elect Joe Biden.

Currency markets were largely unperturbed by scenes of chaos in Washington as supporters of outgoing President Donald Trump stormed Capitol Hill.

Analysts generally assume a Democrat-controlled Senate would be a net positive for economic growth globally and thus for most risk assets, but negative for bonds and the dollar as the U.S. budget and trade deficits may widen further.

The dollar index was little changed at 89.321 in early Asian trade on Thursday, after dipping to its lowest since March 2018 at 89.206 overnight.

The yield on the benchmark 10-year Treasury note climbed as high as 1.054% on Wednesday for the first time since the market mayhem of mid-March.

Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, sees the dollar’s fortunes split with Democrats controlling both Houses.

“The dollar will remain weaker against commodity currencies like the Aussie and emerging market currencies,” which benefit when risk sentiment is positive, he said.

At the same time, “higher Treasury yields should benefit the dollar against the euro and the yen, because the dollar has underpriced the potential for U.S economic recovery under Biden.”

The riskier Australian dollar was little changed at 78.025 U.S. cents after touching a nearly three-year high of 78.195 on Wednesday.

The euro gained 0.1% to $1.23385, approaching the $1.2349 level it reached Wednesday for the first time since April 2018.

The dollar fell 0.1% to 102.965 yen, after dipping to 102.595 on Wednesday for the first time since March.

But after a fall of nearly 7% in 2020 for the dollar index and a drop of as much as 0.9% in the new year, the U.S. currency may get some respite from some unwinding of a crowded trade.

“People have been bearish on the dollar now for at least six or nine months,” said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.

“Obviously you are going to have to take a little bit of a breather every now and then.”

Bitcoin marked a fresh all-time high of $37,386 on Thursday, extending a surge of more the 800% since mid-March.

Dollar slips as yuan fixing lifts riskier currencies

The dollar fell against major peers on Tuesday as China set the official yuan exchange rate at the strongest since abandoning its peg in 2005, which helped support demand for other units.

The Australian dollar led gains in major currencies as the move by the People’s Bank of China (PBOC) encouraged broad dollar selling.

Earlier, the greenback had found support as concerns about surging Covid-19 cases and uncertainty about U.S. runoff elections in Georgia spurred a retreat in U.S. stocks from record highs to start the year and kindled demand for safer assets.

While investor caution about the yuan’s heady rally prompted some later selling in the Chinese currency on Tuesday, the PBOC’s action nonetheless lifted risk sentiment in currency markets.

“If the Chinese currency is going up, it’s providing a degree of support for Asian currencies in general, and I suspect that’s why the U.S. dollar is partially reversing the gains that we saw from Wall Street time,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

“It’s a very big move by any historical yardstick, and I don’t think you can ignore that.”

The PBOC set the official yuan midpoint at 6.4760 per dollar prior to the market open, 1% firmer than the previous fix, also the biggest change since 2005.

In the offshore market, the yuan strengthened as far as 6.4419 for the first time since June 2018. It started the week at 6.4944.

The Aussie dollar, a barometer of risk appetite that also tends to follow the yuan, jumped 0.5% to 77.022 U.S. cents in the Asian session, approaching the 2-1/2-year high of 77.43 touched on the final day of 2020.

The dollar index weakened 0.2% to 89.731. It dropped as low as 89.415 on Monday for the first time since April 2018, but ended the day with a 0.1% gain after U.S. stocks slid.

“Until the vaccines are rolled out globally, the market will continue to be driven by COVID headlines, so it’s a bit of a volatile time,” said Shinichiro Kadota, senior currency strategist at Barclays Capital in Tokyo.

“But generally positive risk sentiment should continue this year, and with that, dollar continues to weaken against riskier currencies. We expect Chinese yuan to be one of the outperformers.”

The dollar fell 0.1% to 103.010 yen. It dropped as low as 102.715 on Monday for the first time since March.

The euro rose 0.1% to $1.22690 after reaching $1.231 on Monday, a level not seen since April 2018.

The British pound gained 0.1% to $1.3583.

Sterling has been swung by a surge in infections of a fast-spreading new coronavirus strain in the UK, with Prime Minister Boris Johnson ordering a nationwide lockdown.

It slid 0.73% on Monday, the most since Dec. 10, after earlier rising to $1.3703, a level not seen since May 2018.

Bitcoin traded at $31,407 following a roller-coaster ride to start the new year that took it to a record high of $34,800 on Sunday, followed by a tumble to as low as $27,734 the following session.

Dollar slips in to 2021 as investors ride downtrend

The dollar started the new year more or less where it left off – under pressure from investors who reckon low U.S. interest rates and an eventual worldwide recovery from the coronavirus pandemic will make it a laggard against other major currencies.

In early Asia trade on Monday, still thinned by holidays, some short sellers were again adding to bets against the dollar and unwinding a small bounce it enjoyed on the last trading day of 2020 when profit-taking lent support.

The euro rose 0.2% from its New Year’s Eve closing level to $1.2244, while a media report that Japan is considering a state of emergency for Tokyo pushed up the yen by about 0.3% to 103.05 per dollar.

Japan’s Fuji TV reported an emergency may be declared for as early as this week, as the Japanese capital grapples with record levels of infection. Prime Minister Yoshihide Suga is due to hold a news conference to mark the start of 2021 at 0200 GMT.

That news also unwound what had been small early gains for the Australian and New Zealand dollars, which fell back to around steady by 0045 GMT, with the Aussie at $0.7681 and the kiwi at $0.7181.

Surging coronavirus cases also held back gains in sterling, which was steady at $1.3669 after British Prime Minister Boris Johnson said on Sunday tougher lockdown restrictions were probably on the way as Covid-19.

Still, the Chinese yuan, which has become a favored vehicle for shorting the dollar as China’s economy rebounds impressively, climbed roughly 0.2 to 6.4927 per dollar in offshore trade, close to testing a 2-1/2 year low.

Soaring cryptocurrency bitcoin also extended its record-smashing rally, and was just below a record high of $34,800 hit on Sunday. It rose 300% in 2020 and has gained more than 65% since crossing $20,000 just over two weeks ago.

The Singapore dollar touched a 32-month high of S$1.3203 per dollar after data showed Singapore’s economy, which is a bellwether for global trade, contracted slightly less than expected in the fourth quarter.

Elsewhere, traders have an eye on Tuesday’s runoff vote in the U.S. state of Georgia, which will determine control of the Senate and so the fate of President-elect Joe Biden’s agenda.

Voters have not elected a Democrat senator in Georgia in 20 years and if either or both Republican incumbents win, their party would retain a narrow Senate majority.

A Democratic sweep could trigger further dollar weakness, as investors assume it would lead to higher stimulus spending which would in turn boost market sentiment and weigh on the dollar.

The dollar posted its largest annual loss since 2017 last year as, after March’s panic subsided, it settled in to a downtrend that has only drawn more traders to short it.

Against a basket of currencies the dollar was a fraction below where it ended 2020 at 89.766.

Benchmark 10-year U.S. Treasury yields began the year firmly at 0.9298%. But that is almost 100 basis points below where they began 2020 and a turn-off for yield-chasers.

Minutes of the Federal Reserve’s December meeting due on Wednesday should offer more detail about making their forward policy guidance more explicit and the chance of a further increase in asset buying this year – another anchor on yields.

Dollar sucked into downward spiral by U.S. twin deficits

The dollar was ending 2020 in a downward spiral on Thursday with investors wagering a global economic recovery will suck money into riskier assets even as the yawning U.S. twin deficits argue for an ever cheaper currency.

The euro steamed ahead to $1.2281, having hit its highest since April 2018 with a gain of almost 10% for the year. The next stops for the bull train are $1.2413 and $1.2476, on the way to the 2018 peak at $1.2555.

The dollar also dropped to 103.07 yen, but stopped just short of the December low at 102.86. Trade was thin in Asia with Japan and South Korea on holiday.

Sterling jumped as lawmakers approved a post-Brexit trade deal with the European Union. The pound stretched as far as $1.3647, levels not seen since May 2018.

Against a basket of currencies the dollar had sunk to 89.62, having touched it lowest since April 2018. That left it down 7.2% on the year, and no less than 13% on the 102.99 peak hit during the market mayhem of mid-March.

The next target is 89.277 and then 88.251, which was the absolute low in 2018.

The prospect of a brighter 2021 has lessened the need for the safe-haven dollar, while burnishing the attraction of riskier assets especially in emerging markets.

Bears have also resurrected the “twin deficits” excuse for shorting the dollar – that the explosion in the budget and trade deficits means more dollars being printed and moved abroad.

From this perspective the new U.S. stimulus bill is dollar negative as it adds to the nation’s debt, and President-elect Joe Biden is promising a lot more next year.

The country is also hemorrhaging dollars on its trade account where the deficit on goods hit a record $84.8 billion in November as imports surged past pre-pandemic levels.

Likewise, the current account deficit widened to a 12-year high in the third quarter and there was a large shortfall in net financial transactions as Americans borrowed more from abroad.

In contrast, the European Union runs a huge current account surplus, largely thanks to Germany, so there is a natural inflow to euros through trade.

“The U.S. dependence on foreign savings is increasing and at 3.4% of GDP, it is approaching a danger zone where it will become increasingly difficult to attract savings without further dollar weakness, or higher interest rates,” said Alan Ruskin, global head of G10 FX at Deutsche, in a note.

“The deterioration in the ‘twin deficits’ will do nothing to improve USD sentiment, even if it does not as yet justify extreme USD undershooting either.”