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Dollar lagging behind as US yields fall despite stronger US recovery

© Reuters. A man counts US dollar banknotes in a money exchange shop in Beirut

Posted by Kevin Buckland

TOKYO (Reuters) – The dollar stabilized near a nearly two-week lows against a basket of its peers on Tuesday and went hand in hand with a decline in government bond yields from recent highs despite signs of a robust rebound in the US economy.

The price fell to 92,527 in the Asian session, the weakest since March 25. The softer curve comes less than a week after it hit a nearly five-month high at 93.439.

The yen continued to recover from a more than one-year low near 111 per dollar and briefly climbed back below 110 on Tuesday. The euro extended its rise from a nearly five-month low near USD 1.17 to USD 1.1821.

The greenback, along with government bond yields, has risen sharply this year as investors look to the US pandemic to recover faster than other developed countries amid massive incentives and aggressive vaccinations.

But the dollar’s decline this week, even after Friday’s much stronger-than-expected monthly salary data was followed by the highest reading for registered service industry activity on Monday, could suggest that much of the bullish outlook is currently priced in.

“While the US looks amazing, over time the COVID normalization means the rest of the world will converge,” wrote Mark McCormick (NYSE :), global head of foreign exchange strategy at TD Securities, in a customer announcement.

“USD levels have now outpaced revitalized growth expectations outside the US,” meaning there is “room for a USD pause in its recent uptrend,” he wrote.

Benchmark 10-year Treasury yields continued their retreat on Tuesday, falling below 1.7% at the start of the Asian session, after peaking at 1.776% last week – a level not seen since January last year has been.

It was even when the robust economic outlook drove US stocks to record highs.

However, Westpac strategists see room for further dollar gains and say the data “solidifies the US dollar’s unbeatable growth recovery traits.”

“DXY failed to take advantage of the strong macroeconomic tailwind,” they wrote, referring to the dollar index.

“Pullbacks in 92 should be bought to hit the third quarter 2020 highs around 94.50.”

The Australian dollar, considered an indicator of risk appetite, fell slightly to $ 0.76415 on Tuesday after rising 0.8% earlier in the week. The Reserve Bank of Australia left policy unchanged on Tuesday, as expected.

The British pound rose to a 2-1 / 2 week high of $ 1.3915 in Asia, building on the previous session’s 0.6% gain.

In cryptocurrencies, Bitcoin was trading at $ 58,882 on Tuesday, down a little after a two-day gain. It hit a record high of $ 61,781.83 in the middle of last month.

According to data and market chasers CoinGecko and Blockfolio, cryptocurrency market capitalization peaked at $ 2 trillion on Monday as profits have been in demand from both institutional and retail investors in recent months.

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