• The dollar weakened in Asia on Tuesday as U.S. Treasury yields fell to three-month lows, with investors fretting over a possible pause in the Federal Reserve’s rate-hike cycle and portents of recession seen in a yield curve inversion.
The U.S. 10-year Treasury yield fell to 2.94 percent on Tuesday, its lowest level since mid-September. The difference in yield between the U.S. 2-year and 10-year tightened to its smallest since July 2007.
“Falling U.S. yields are a negative for the dollar, especially versus the major currencies,” said Rodrigo Catril, senior currency strategist at NAB.
The curve between 3-year and 5-year notes inverted for the first time since 2007 on Monday and was last at minus 1.2 basis points.
Catril added that U.S. Treasury yields are near crucial technical support levels, a break of which could add further pressure on U.S. yields and the dollar.
The dollar index, a gauge of its value versus six major peers, was off 0.23 percent at 96.8.
• Markets have priced in an 87 percent probability of a rate hike at the Fed’s Dec. 18-19 meeting.
• “Given data remains strong, we think the Fed will hike twice in 2019 and that’s more than what the market is pricing in right now...we remain moderately bullish on the dollar,” said Nick Twidale, chief operating officer at Rakuten Securities.
• The dollar fell 0.5 percent against the offshore yuan to 6.8375. On Monday, it lost 1.07 percent, its steepest percentage fall since Aug. 25.
• The yen traded at 113.05 to the dollar, with the greenback losing 0.5 percent versus the Japanese currency.
• Elsewhere, sterling was gained 0.2 percent to trade at $1.2744 due to broad dollar weakness. On Monday, the pound fell below $1.27 for the first time since Oct. 31.
• The United States expects China to take immediate action to cut tariffs on U.S. car imports and end intellectual property theft and forced technology transfers as the two countries move toward a broader trade deal, a White House official said on Monday.
• The legal advisor for the European Union's top court said Tuesday that the U.K. can cancel Brexit without asking for permission from other EU member states.
The full ruling will follow within days, though it’s expected that the opinion of the advocate general will almost certainly be followed by the panel of judges.
• China’s central bank will keep monetary policy flexible and adjust it appropriately according to changes in the country’s economic situation, bank Governor Yi Gang said.
Yi’s comments come amid widespread expectations that the central bank will ease policy further in coming months to support China’s economic growth, which has cooled to the weakest pace since the global financial crisis.
However, some of the pressure for more immediate action may have been lifted by a weekend agreement between the United States and China for a temporary truce in their trade war to allow for further negotiations.
• The Chinese yuan is set to grow in importance over the long term, experts say.
China's ongoing financial opening is likely to have a "more enduring influence" on yuan investment flows than the ongoing tariff conflict with the U.S., HSBC says.
China still maintains capital controls but it has trickled out financial reforms, with foreign investors obtaining more access to its stock and bond markets.
• Three weeks of “yellow vest” protests have hit the French economy hard, with trade in shops, hotels and restaurants falling significantly, Finance Minister Bruno Le Maire said on Monday.
While not providing a precise breakdown, Le Maire said small retailers had seen a fall in revenue of between 20 and 40 percent, and the hotel industry was seeing reservations down 15 to 25 percent.
• South Korean President Moon Jae-in said on Tuesday a visit to Seoul by North Korean leader Kim Jong Un was “a possibility” and that such a trip would help to improve Pyongyang’s relationship with the United States.
U.S. Vice President Mike Pence said last month Trump would push for a concrete plan outlining Pyongyang’s moves to end its nuclear and missile programs.
Trump signaled on Saturday he was likely to meet Kim again in January or February.
• Oil prices rose by more than 1 percent on Tuesday, extending bigger gains from the previous day amid expected OPEC-led supply cuts and a mandated reduction in Canadian output.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $53.53 per barrel at 0742 GMT, up 58 cents, or 1.1 percent, from their last close.
International Brent crude oil futures LCOc1 were up 70 cents, or 1.1 percent, at $62.39 per barrel.
“Oil prices look likely to move up gradually...this week as investors anticipate supply cuts by OPEC+,” said Benjamin Lu of Singapore-based brokerage Phillip Futures, referring to the producer group and Russia.
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