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Dollar rally runs out of puff as yields ease

Wednesday,   13-Jan-2021   08:58 AM (IST)

The dollar nursed losses on Wednesday as a retreat in U.S. yields sapped momentum from its recent rebound and investors cautiously resumed bets that it can resume sliding. Benchmark 10-year Treasury yields US10YT=RR fell nearly 7 basis points from a 10-month high hit on Tuesday and the turnaround snuffed out a three-day streak for the dollar. Against the euro, it posted its sharpest daily fall in more than a month and it dropped more than 1% against the pound, which was also boosted by the Bank of England governor talking down the prospect of negative rates. Australian and New Zealand dollars rose from one-week lows, lifting the Aussie above 77 cents again to sit at $0.7680 and the kiwi over 72 cents to trade at $0.7226. The dollar fell through 104 Japanese yen to trade at 103.63 yen on Wednesday and the Chinese yuan also held gains to begin the day at a one-week high in offshore trade. The moves press the dollar back toward multi-year lows, although it clung above those levels in Asia as the bounce this week has tempered some traders' confidence in the consensus view that U.S. trade and budget deficits will drive it lower. The euro steadied at $1.2208 and dollar index was steady at 89.991 on Wednesday after falling 0.5% on Tuesday. Sterling hit a week-high of $1.3680. The bond-market selloff 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 to usher in huge sums in government borrowing to fund big-spending stimulus plans and have figured that higher U.S. rates might make dollars more attractive. However, strong demand at a $38 billion 10-year auction overnight and comments from U.S. Federal Reserve officials reiterating that monetary policy is going to stay supportive seem to have once more turned the blowtorch on the greenback. December U.S. inflation figures are due at 1330 GMT and, after Kansas City Fed President Esther George said overnight she does not expect the Fed to react if inflation tips over its 2% goal, it may take a large surprise to unnerve investors.