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Dollar turns higher as risk sentiment wanes

The U.S. dollar recovered after falling to its lowest level since April 2018 on Monday, as surging coronavirus cases undermined bullish sentiment that had begun the new year across global markets and pushed investors into riskier currencies, such as the Chinese yuan and the euro.

With U.S. interest rates pinned at record lows, massive U.S. deficits and a belief that rebounding world trade will drive non-dollar currencies higher, the dollar initially weakened on the first day of trading in 2021 after falling nearly 7% in 2020.

But the losses for the dollar reversed as risk-appetite soured shortly after the opening of trading for U.S. equity markets, with major indexes down more than 1% on concerns over the rollout of coronavirus vaccines and the outcome over the runoff elections in Georgia that will determine control of the Senate.

The dollar index rose 0.159%, after touching a low of 89.415, a level last seen on April 17, 2018.

The Chinese currency was the biggest beneficiary of the weak dollar trade as the yuan rocketed to a two-and-a-half-year high.

The Chinese yuan strengthened to 6.44 yuan per dollar after Beijing cut the weighting of the U.S. dollar in a key currency index basket. That could push the yuan’s value higher against its peers this year, analysts said, while Chinese factory activity continued to accelerate in December.

After a dip on New Year’s Eve profit-taking, the euro was up 0.9% to $1.2246, after hitting a high of 1.231, its highest level since April 2018 as positive economic indicators helped the currency strengthen.

Also, a closely-watched gauge of growth in British manufacturing activity rose to its highest level in three years as factories rushed to complete work before the end of the post-Brexit transition period on Dec. 31.

Sterling, however, relinquished its early gains against the dollar, retreating below $1.37 as tighter lockdown measures were set to be introduced. Sterling was last trading at $1.3557, down 0.83% on the day.

The safe-haven Japanese yen strengthened 0.05% versus the greenback at 103.17 per dollar, after Japanese Prime Minister Yoshihide Suga said his government was mulling a state of emergency in Tokyo as coronavirus cases rise.

U.S. dollar weakness will continue into the Biden term: Standard Chartered

Steve Englander of Standard Chartered talks about the important level he’s eyeing that he says will broadly move emerging-market currencies.

Treasury yields reverse lower as investors flock to safe assets amid equity sell-off

Treasury yields turned slightly lower on Monday to kick off 2021 as investors flocked into safe assets amid a broad sell-off in stocks.

The yield on the benchmark 10-year Treasury note dipped 1 basis point to 0.90% after rising to 0.94% earlier in the day. The yield on the 30-year Treasury bond also reversed lower to trade at 1.64%. Yields move inversely to prices.

Wall Street had an ugly start to the new year with the Dow Jones Industrial Average dropping more than 700 points at one point on Monday. The declines came ahead of Tuesday’s runoff elections in Georgia, where victories by the Democratic candidates in both races would flip control of the Senate just months before Joe Biden’s inauguration.

A blue sweep in these races would give Democrats control of the House, Senate and White House. Some investors are fearful about the economic ramifications of this majority as Democrats would likely raise taxes and introduce less favorable corporate regulations.

Bitcoin falls as record-breaking rally loses steam

Bitcoin is pulling back from its record highs. The cryptocurrency briefly dipped below $30,000 Monday, just two days after breaching that level for the first time.

The price of bitcoin rallied to a fresh all-time high over the weekend, topping the $34,000 mark. That move was followed by a surge in smaller cryptocurrencies such as ether, which passed the $1,000 mark for the first time since February 2018.

Bitcoin slumped as low as $29,316 at around 5:40 a.m. ET Monday, falling 12% in the last 24 hours. It later went back above the $30,000 level, paring losses to trade at around $31,420, but was still down more than 6%.

“The most likely explanation for a pullback is short term profit taking by traders, rather than long term investors,” Jason Deane, an analyst at crypto advisory firm Quantum Economics, told CNBC by email. “Given the current sentiment and appetite for Bitcoin, it seems likely that any correction will be short lived.”

Reference: CNBC, Reuters