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Dollar heads for second weekly loss on Fed's lower-for-longer stance

EconomyApr 16, 2021 04:30AM ET
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© Reuters. U.S. dollar notes are seen in this picture illustration

By Ritvik Carvalho

LONDON (Reuters) - The dollar headed for its worst back-to-back weekly drop this year amid an extended retreat in Treasury yields as investors increasingly bought into the Federal Reserve's insistence of keeping an accommodative policy stance for a while longer.

The benchmark 10-year Treasury yield dipped to a one-month low of 1.528% overnight, moving further away from over a one-year high of 1.776% reached at the end of last month, even in the face of Thursday's stronger-than-expected retail sales and employment data.

San Francisco Fed President Mary Daly said on the same day that the U.S. economy is 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 greenback against six major peers, dipped to an almost one-month low of 91.487 on Thursday before steadying to 91.654 in the European session.

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, on bets that massive fiscal spending coupled with continued monetary easing will spur faster U.S. economic growth and higher inflation, particularly compared to places like Europe.

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 U.S. 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 U.S. yields, despite above consensus U.S. CPI and retail sales."

Retail sales increased 9.8% last month, beating economists' expectations for a 5.9% rise, while first-time claims for unemployment benefits tumbled last week to the lowest level in more than a year, separate reports showed Thursday.

The dollar traded at 108.94 yen, heading for a 0.8% loss for the week, following a 0.9% decline the previous week. (Graphic: Dollar set for second weekly loss, https://fingfx.thomsonreuters.com/gfx/mkt/xklvyynyovg/dxy.png)

"We are tempted to say that DXY made an important corrective high at 93.44 at the end of March – and is now heading for a retest of the year’s lows at 89.21," Turner said.

The euro changed hands at $1.1977, 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 traditionally safe-haven dollar amid increased risk appetite.

"From a cross-asset perspective, we are seeing a theme in markets, which seems similar to last year in the sense of falling real US yields, rising commodities, declining vol, strengthening equities and general dollar weakness," said Mikael Olai Milhøj, chief analyst at Danske Bank.

Highly anticipated economic data from China on Friday ultimately had little effect on currencies, even as 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 $61,583, below the record high of $64,895 reached on Wednesday, when cryptocurrency platform Coinbase made its debut in Nasdaq in a direct listing.

Dollar heads for second weekly loss on Fed's lower-for-longer stance
 

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Maureen Perez
Maureen Perez Apr 17, 2021 8:02PM ET
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𝚑𝗼𝘄 𝗱𝗼𝗲𝘀 𝗹𝗶𝗳𝗲 𝗳𝗲𝗲𝗹 𝘄𝗵𝗲𝗻 𝗺𝗼𝗻𝗲𝘆 𝗶𝘀 𝗻𝗼𝘁 𝗮𝗻 𝗶𝘀𝘀𝘂𝗲? 𝘄𝗵𝗮𝘁 𝗶𝘀 𝗶𝘁 𝗹𝗶𝗸𝗲 𝘁𝗼 𝗵𝗮𝘃𝗲 𝗮𝗹𝗹 𝘆𝗼𝘂𝗿 𝗯𝗶𝗹𝗹𝘀 𝗮𝗻𝗱 𝗱𝗲𝗯𝘁𝘀 𝗽𝗮𝗶𝗱 𝗶𝗻 𝗳𝘂𝗹𝗹? 𝘄𝗵𝗲𝗻 𝗰𝗮𝗻 𝘆𝗼𝘂 𝗱𝗼 𝘄𝗵𝗮𝘁 𝘆𝗼𝘂 𝘄𝗮𝗻𝘁, 𝘄𝗵𝗲𝗻 𝘆𝗼𝘂 𝘄𝗮𝗻𝘁? 𝘁𝗵𝗲𝗿𝗲 𝗶𝘀 𝗻𝗼 𝗻𝗲𝗲𝗱 𝘁𝗼 𝘄𝗼𝗻𝗱𝗲𝗿 𝗮𝗻𝘆𝗺𝗼𝗿𝗲. 𝘁𝗵𝗶𝘀 𝗮𝗽𝗽 𝗶𝘀 𝘁𝘂𝗿𝗻𝗶𝗻𝗴 𝗼𝗿𝗱𝗶𝗻𝗮𝗿𝘆 𝗽𝗲𝗼𝗽𝗹𝗲 𝗶𝗻𝘁𝗼 𝗺𝗶𝗹𝗹𝗶𝗼𝗻𝗮𝗶𝗿𝗲𝘀 𝗮𝗻𝗱 𝗵𝗲𝗹𝗽𝗶𝗻𝗴 𝘁𝗵𝗲𝗺 𝗳𝗶𝗻𝗮𝗹𝗹𝘆 𝗹𝗶𝘃𝗲 𝘁𝗵𝗲 𝗹𝗶𝗳𝗲𝘀𝘁𝘆𝗹𝗲 𝗼𝗳 𝘁𝗵𝗲𝗶𝗿 𝗱𝗿𝗲𝗮𝗺𝘀. 𝚑𝗲𝗿𝗲 𝗶𝘀 𝘁𝗵𝗲 𝗹𝗶𝗻𝗸:𝘂𝗷𝗲𝗷𝘀𝗰𝗮.𝗺𝗹
Abdul azeez Taiwo
Abdul azeez Taiwo Apr 16, 2021 6:24AM ET
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tmoney
 
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