Dollar extends rebound as US yields rise

Dollar extends rebound as US yields rise

FILE PHOTO: U.S. dollar and Euro bank notes are photographed in Frankfurt, Germany, in this illustr
US dollar and Euro bank notes are photographed in Frankfurt, Germany, in this illustration picture taken May 7, 2017. (Photo: REUTERS/Kai Pfaffenbach)

NEW YORK: The dollar edged higher across the board on Monday (Jan 11), extending a rebound from the near three-year low hit last week, taking strength from the recent spike in Treasury yields and the prospect of a growth boost from higher US fiscal stimulus.

Democratic US President-elect Joe Biden, who takes office on Jan 20 with Democrats able to control both houses of Congress, has promised "trillions" in extra pandemic-relief spending.

Ordinarily, the extra spending plans would prompt investors to worry about rising inflation and its detrimental effect on the US dollar in a weak economy, but the currency has been supported in recent weeks thanks to rising US yields.

US government bond yields have logged big moves in recent sessions, with the Treasury yield curve experiencing a significant increase in yields in longer-dated bonds.

Benchmark Treasury yields rose to 10-month highs on Monday as investors priced for higher government spending under the incoming Joe Biden administration and before the Treasury will sell new long-dated supply.

At 99 basis points, the spread between the 2-year and 10-year Treasury yield is at its steepest since July 2017..

The US dollar index was 0.2 per cent higher at 90.494, its fourth straight session of gains. The index fell as low as 89.21 last weak, its weakest since March 2018.

"The appreciation of the dollar is coming at a time of not only rising yields but a risk-off period created by heightened uncertainty about political developments in the US," said Paresh Upadhyaya, director of currency strategy and portfolio manager for Amundi Pioneer Asset Management in Boston

"I think that is exaggerating the strength in the dollar,"

Speculators in the FX market remain extremely bearish on the dollar, US Commodity Futures Trading Commission data released on Friday, showed.

The stronger dollar took a bite out of the pound, with the British currency down 0.3per cent, as Britain's chief medical adviser warned that the next few weeks of the pandemic will be the worst yet.

Meanwhile, bitcoin fell 20 per cent to a one-week low on Monday before paring losses, putting the cryptocurrency on track for its biggest one-day drop since March as its recent red-hot rally faltered.

Source: Reuters

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