Dollar buoyed by rising US yields amid new stimulus prospects

TOKYO: The dollar held four days of gains against major peers on Tuesday as the prospect of massive fiscal stimulus pushed US yields higher.

President-elect Joe Biden, who takes office on Jan. 20 with his Democratic party in control of both Houses, has promised "trillions" in extra pandemic-relief spending.

The dollar index has rebounded from a nearly three-year low reached last week as the benchmark 10-year US Treasury yield topped 1% for the first time since March and rose as high as 1.148% overnight.

The support from rising yields has so far trumped worries that the extra spending would increase debt levels and trigger faster inflation, which ordinarily would make the greenback less attractive.

Many analysts expect the US currency to resume the decline that saw the dollar index lose close to 7% in 2020 as expanded stimulus and vaccine rollouts brighten the global economic outlook. Investors tend to buy the dollar when they are looking for safer investments.

The dollar index was little changed at 90.578 in Asian trading, having risen as high as 90.73 overnight for the first time since Dec. 21. It dipped to 89.206 on Jan. 6, a level not seen since March 2018.

"It's complicated because higher US yields are giving the dollar a bounce, but stimulus could support US equities, and the dollar would remain weak," said Osamu Takashima, head of G10 FX strategy at Citigroup Global Markets Japan in Tokyo.

"In the medium-term, we remain bearish on the dollar. Dollar assets look expensive."

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

The greenback added 0.1% to 104.305 yen, after rising to a one-month high of 104.40 on Monday.

The euro was largely steady at $1.21425 after slipping to $1.21320 in the previous session for the first time since Dec. 21.

Currency markets mostly shrugged off a Democratic push to impeach President Donald Trump following last week's siege of the Capitol.

"We do not expect US political theatre to be a major driver of the USD," Commonwealth Bank of Australia currency analyst Joe Capurso wrote in a client note.

"Market participants are looking to the policies of the Biden presidency rather than the dying days of the Trump presidency."

"Given the USD is modestly overvalued, we expect the recent lift in the USD to be limited," he added.

Meanwhile, China's yuan edged up against the dollar on demand for cash ahead of next month's Lunar New Year holiday.

Onshore spot yuan opened at 6.4770 per dollar and was changing hands at 6.4712 at midday, 81 pips stronger than the previous late session close.

Bitcoin was trading at $35,186 as its red-hot rally has faltered since it soared to an all-time high of $42,000 on Jan. 8.