Dollar bounce fades as U.S. yields slip

Wednesday,   13-Jan-2021   02:10 PM (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 fell more than 6 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. Sterling made a new one-week high of $1.3693 in Asian trade on Wednesday, while the euro steadied at $1.2214. The Australian and New Zealand dollars rose from one-week lows, lifting the Aussie above 77 cents again to sit at $0.7758 and the kiwi over 72 cents to trade at $0.7220. The pullback in yields pushed the dollar below 104 Japanese yen to trade at 103.66 yen by midsession in Asia though moves were slight as dollar bears' conviction wavered. The dollar index was steady at 90.004 after falling 0.5% on Tuesday and is not far above last week's nearly three-year low of 89.206. Even the Malaysian ringgit, which was heavily sold as the country entered a fresh lockdown on Tuesday, was able to creep higher to 4.0400 per dollar. 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 that 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. Mixed signals from some U.S. Federal Reserve members as to 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.