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Dollar slide continues, yuan rally gets attention

EconomyMay 25, 2021 03:55PM ET
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© Reuters. FILE PHOTO: A packet of former U.S. President Abraham Lincoln five-dollar bill currency is inspected at the Bureau of Engraving and Printing in Washington March 26, 2015. REUTERS/Gary Cameron/File Photo

By David Henry

NEW YORK (Reuters) - The dollar extended its nearly two-month slide against major peers on Tuesday as U.S. interest rates fell on U.S. Federal Reserve arguments for easy monetary policy despite current inflationary forces.

The dollar weakness came as U.S. Treasury yields fell to fresh multi-week lows and the yield curve flattened after an auction of two-year notes attracted solid demand.

Benchmark 10-year Treasuries fell as low as 1.56% on Tuesday afternoon.

Interest rates in many other countries have climbed in the past month and made their currencies more competitive against the dollar, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

The current outlook is for that difference to continue, he added. "The Federal Reserve seems to be behind several other central banks in adjusting and recalibrating monetary policy."

Since the end of March the dollar has declined on the belief that low U.S. rates will drive cash abroad to capture gains now that other economies are beginning to recover more quickly from the pandemic.

The dollar index against major currencies was off 0.2% in the afternoon in New York at 89.646. Early in the day it fell to 89.533, the lowest since Jan. 7.

The euro climbed to January levels and was last up 0.3% on the day at $1.2253.

Early in the day, China state-owned banks were seen trying to curb a yuan rally which carried the onshore yuan to 6.4016 per dollar, the strongest since 2018.

China's major state-owned banks, four sources said, were seen buying U.S. dollars at around 6.4 yuan in the Asian afternoon in a move viewed as an effort to cool a yuan rally led by its offshore counterpart.

Strategists have said the dollar is likely be weak against many currencies until markets see stronger U.S. economic data and interest rates. Stronger data could come on Friday with new readings on U.S. core consumer prices in April and a survey of purchasing managers.

Comments from Fed officials are keeping down U.S. yields, said Jeremy Stretch, head of G10 FX strategy at CIBC. "That's maintaining the weaker dollar narrative."

Dovish comments from Fed speakers continued on Tuesday with a speech by Charles Evans, president of the Federal Reserve Bank of Chicago, who said recent inflation reports reflected only a "burst of post-pandemic relative price level adjustments." [nL2N2NB2JR]

Two other Fed officials made similar statements on Monday.

The British pound, which had run up about 2% against the dollar since April, was stalled at $1.4149 as though it could not break through $1.42. [GBP/]

Sterling needs fresh evidence of British economic strength to get back to the 2021 high of $1.4240 reached in February, traders and analysts said.

Cryptocurrencies Bitcoin and Ether were off about 3% for the day in the afternoon in New York.

Dollar slide continues, yuan rally gets attention
 

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Comments (6)
Mike Chen
Mike Chen May 25, 2021 8:33AM ET
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Borrow dollars and short it for future profit.
Notvery Goodathis
Peteymcletey May 25, 2021 8:32AM ET
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Current Biden/yellen plan: pay for trillions and trillions in stimulus by causing extreme inflation. Thereby reducing the debt that's there and that will exist in short term. This will of course have no impact on Americans purchasing power.. on anything...
Ominous Owl
Ominous Owl May 25, 2021 5:40AM ET
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What a ridiculous title.
Jokers R Us
Jokers R Us May 25, 2021 5:05AM ET
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How is a lower dollar the Fed soothing inflation fears. .
Alfie Brock
Alfie Brock May 25, 2021 5:05AM ET
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When the dollar is high it buys less goods, thus slowing spending and slowing the whole economy.
Alfie Brock
Alfie Brock May 25, 2021 5:05AM ET
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people buy less when things are expensive
Vincenzo Tilotta
Vincenzo Tilotta May 25, 2021 5:05AM ET
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You are right Jokers. You are right, your question/statement is correct, the Fed are pulling the wool over the eyes of the people. When the dollar goes lower in the DXY, it means it weakens, i.e. It loses purchasing power. Therefore, it causes more and more inflation, because inflation is a synonim of a weak currency like the USD. As the USD continues to weaken, like it has done over the last 6 months, inflation will continue to strenghten, and prices will skyrocket. They already started to. This is what every economics book says, and the Fed are now stating the opposite because they fear that the sheeples will realise the true reality of what is happening in the US
Bhee Jay
Bhee Jay May 24, 2021 10:24PM ET
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nice
Antique Purveyor
Antique Purveyor May 24, 2021 9:28PM ET
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there comes a time we will need to adjust monetary policy YES, and it might not be now, during a pandemic, but if you're not positioning yourself 9 months ahead of that time then you might miss all sorts of opportunity
Patryk Sl
Patryk Sl May 24, 2021 9:28PM ET
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What do you mean by 9 months
 
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