Dollar rises for second day as markets look to Biden's stimulus plan

NEW YORK: The dollar rose for a second straight session on Thursday, holding above three-year lows against major peers, in line with a rise in Treasury yields, amid upbeat expectations about President-elect Joe Biden's fiscal stimulus.

The US 10-year Treasury yield rose, as Biden is expected Biden to unveil a stimulus package proposal on Thursday designed to jump-start the economy during the coronavirus pandemic with an economic lifeline that could exceed $1.5 trillion and help minority communities.

That helped support the dollar and boosted US yields. Since the beginning of the month, 10-year yields have climbed more than 20 basis points.

"With labor really struggling, there's an argument that we could push for a higher stimulus number," said Edward Moya, senior market analyst, at OANDA in New York. "In the end, markets are anticipating that we're going to see more stimulus than what is expected in Biden's first 100 days and that's why we're seeing the dollar holding up."

In mid-morning trading, the dollar index rose 0.2% to 90.521, as investors awaited details of Biden's pandemic relief plan.

The dollar has risen in six of the last seven trading sessions, as the prospect of more stimulus has weighed on US government bonds, sending the benchmark 10-year Treasury yield above 1% for the first time since March.

Expectations are high for the stimulus, but many analysts believe the spending push has already been priced in.

"We feel the fiscal cat is out of the bag already: it would take a lot to surprise markets after the re-pricing seen last week," ING analysts said. "The scope for the reflation trade to restart on the back of this announcement alone is limited."

Benjamin Melman, chief investment officer at Edmond de Rothschild AM, was also cautious. He said Biden might have to scale back his stimulus ambitions to get the plan through Congress.

The euro eased 0.3% to $1.2118, despite positive news from the bloc's economic powerhouse.

Germany's economy shrank by 5% in 2020, less than expected and a smaller contraction than during the global financial crisis, as unprecedented government rescue and stimulus measures lessened the shock of the COVID-19 pandemic.

The European single currency is being weighed down by expectations that the European Central Bank will be monitoring exchange rates more closely. The euro has gained about 6.3% over the last six months.

ECB policymaker Francois Villeroy de Galhau said on Wednesday that the ECB was keeping a close eye on exchange rate developments and their negative impact on inflation.

"The continued resonance of...ECB's Villeroy's rhetorical shot across the bows of euro bulls yesterday seems to have maintained euro/dollar's heaviness," said Action Economics on its blog on Thursday.

The global recovery-sensitive Australian and New Zealand dollars firmed to US$0.7744 and US$0.7182.

Bitcoin held gains on Thursday after a slide of nearly $12,000 from last week's record high of $42,000. It rose about 5.9% to $39,588 on Thursday.

Interest in the cryptocurrency has surged as institutional investors began buying heavily, viewing it as both an inflation hedge and as exposed to gains if it becomes more widely adopted.