LONDON: The dollar was set to post a second week of losses on Friday amid an extended retreat in Treasury yields, as investors increasingly bought into the Federal Reserve’s insistence it would keep an accommodative policy stance for a while longer.
The benchmark 10-year US Treasury yield dipped to a one-month low of 1.528% overnight, moving further away from March’s 1.776%, it highest in more than a year, even in the face of Thursday’s stronger-than-expected retail sales and employment data.
San Francisco Fed President Mary Daly said the US economy was still far from making “substantial progress” toward the central bank’s goals of 2% inflation and full employment, the bar the Fed has set for beginning to consider reducing its support for the economy.
That echoed Fed Chair Jerome Powell’s comments in several speeches over the past week that policymakers will look through near-term rises in prices amid ongoing slack in the labour market.
The dollar index, which tracks the dollar against six major peers, fell to an almost one-month low of 91.487 on Thursday before steadying to 91.521 by midday in London.
It’s set for a 0.5% decline for the week, extending the 0.9% slide from the previous week.
The gauge, also known as the DXY, had surged with Treasury yields to an almost-five-month high at 93.439 on the final day of March. Traders were betting that massive fiscal spending coupled with monetary easing would spur faster US economic growth and higher inflation.
But bond and foreign-exchange markets now seem willing to give the Fed the benefit of the doubt that inflation pressure will be transitory and monetary stimulus will remain in place for years to come.
“One of the biggest perceived risks to the 2021 recovery story playing out in financial markets is a bond tantrum - or a disorderly rise in US yields,” ING’s global head of markets and regional head of research for UK and CEE, Chris Turner said.
“Thus, it has been surprising this week to see the large decline in US yields, despite above-consensus US CPI and retail sales.” The dollar traded flat at 108.74 yen, heading for a 0.8% loss for the week, following a 0.9% decline the previous week.
The dollar also lost ground to the Swiss franc, which hit its highest against the greenback in over six weeks. The franc traded 0.4% higher to the dollar at 0.9185 francs per dollar.
The US Treasury releases its latest foreign exchange report today, in which it is expected to name Switzerland as a currency manipulator.
The euro changed hands at $1.1995, set for a 0.5% weekly advance, adding to the previous period’s 1.3% surge.
Some analysts also pointed to Wall Street’s strong gains, with the S&P 500 and Dow both posting record highs, as weighing on the safe-haven dollar amid increased risk appetite. Economic data from China on Friday ultimately had little effect on currencies, even though the world’s second-largest economy posted record 18.3% growth in the first quarter year-on-year.
The Chinese yuan slipped 0.1% to 6.5230 per dollar in the offshore market.
In cryptocurrencies, bitcoin stood around $60,492, below the record high of $64,895 reached on Wednesday, when cryptocurrency platform Coinbase made its debut in Nasdaq in a direct listing.