Dollar Slides on Improving European, U.K. Economic Outlooks, Commodities Bounce

Dollar
A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration

NEW YORK ⸺ The U.S. dollar resumed its slide on Monday and reached multi-year lows against the British pound and the Australian dollar as traders focused on the promise of coronavirus vaccinations and the outlooks for economic growth and inflation that could push bond yields higher. 

The U.S. dollar index was last down 0.3% in afternoon trading in New York at 90.046 and about even for the year. The dollar has been trending down in February and has now given up about all of its January recovery from a 2020 decline of nearly 7%.

The dollar’s latest retreat comes with spreading belief that the U.S. will go farther than necessary to support the economy with government spending and easy money policies and end up with too much inflation and too much additional debt.

Looking for any sign that the U.S. Federal Reserve might become less dovish and more mindful of inflation, markets will be watching testimony on Tuesday from Federal Reserve Chair Jerome Powell to the Senate Banking Committee.

The dollar’s downtrend has come as the benchmark yield on 10-year Treasury notes has climbed to 1.37% from 1.1% at end of January. The 10-year yield was relatively steady in trading on Monday in advance of Powell’s testimony, which will go into a second day on Wednesday before another committee.

“The dollar continues to wax and wane with U.S. data that have painted a mixed picture of the world’s biggest economy,” Joe Manimbo, senior market analyst at Western Union Business Solutions, said in a note on Monday. Weakness in U.S. employment has been undermining dollar rallies as markets see wavering jobs data reinforcing the Federal Reserve’s commitment to low interest rates, Manimbo added.

The euro rose 0.4% against the dollar to $1.2162. Data on Monday showed German business morale rose more than expected in February due notably to the country’s resilient industrial sector.

Exchange rates between the euro and dollar will depend “on whether the U.S. economy really will be able to achieve a stronger post-lockdown boom than Europe,” Commerzbank analyst Ulrich Leuchtmann said.

The British pound was last up 0.5% to $1.4066 and the highest levels since April 2018 as Prime Minister Boris Johnson announced a path out of lockdowns on the UK’s relative success providing COVID-19 vaccinations.

“We’ve clearly started to price in a lot of good news,” said Ned Rumpeltin, head of European currency strategy at TD Securities.

The U.S. dollar fell to three-year lows against the Australian dollar, which benefits from rising commodity prices. The Aussie was last up to $0.7917, at its highest levels since March 2018. 

“Commodity currencies and the pound are particularly strong against the dollar, and this trend looks set to continue,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities.

Australia on Monday began its mass COVID-19 vaccine programme as the country looked set to report no local cases for the third straight day, which gave the Aussie a boost. 

Bitcoin fell 6% on Monday to $53,866 after surging to a record high of $58,354 a day earlier. The cryptocurrency pared losses as fallling as much as 16% on Monday and going as low as $47,400.

Reporting by David Henry in New York and Julien Ponthus in London; Additional reporting by Stanley White in Tokyo; Editing by Paul Simao and Chizu Nomiyama; Reuters

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