Dollar edges lower as recent rally falters
Traders in the forex market exhibited a strong appetite for riskier currencies such as the Australian and the New Zealand dollars, putting pressure on the safe-haven U.S. currency.
The dollar had hit a more than 2-1/2-year low in January after sliding for months as the U.S. Federal Reserves’ interest rate cuts and strong investor demand for riskier assets has sapped demand for the safe-haven U.S. currency.
The dollar index, which measures the greenback against a basket of currencies, was 0.44% lower at 90.074. It was the first daily decline for the index in four sessions.
New lockdown measures across Europe to fight a second COVID-19 wave are feeding worries of a “double-dip recession,” in the region, said Minh Trang, senior FX trader at Silicon Valley Bank.
That, combined with the rise in U.S. yields, has helped boost the dollar in recent days, said Trang.
U.S. Treasury yields traded lower on Tuesday as strong demand for the Treasury Department’s $38 billion sale of benchmark 10-year notes had traders covering short positions, which reversed an early rise in yields.
The support from rising yields has so far trumped worries that the extra spending in the United States could trigger a faster rise in inflation. But many analysts expect the dollar to resume its decline as stimulus spending and vaccine rollouts brighten the global economic outlook.
Most emerging market currencies rose on Tuesday, including the offshore yuan, Mexican peso and South African rand.
Bitcoin was down about 3% at $34,384, a day after it fell 7% in a highly volatile session. The cryptocurrency’s rally has faltered since it soared to a record high of $42,000 on Jan. 8, and it was on pace for it fourth straight session of losses.
Yields drop on short covering after strong 10-year auction
U.S. Treasury yields traded lower on Tuesday as strong demand for the Treasury Department's $38 billion sale of benchmark 10-year notes had traders covering short positions, which reversed an early rise in yields.
Yields had jumped about 20 basis points in the past week on expectations that new fiscal stimulus will boost economic growth and increase Treasury supply after Democrats won control of the Senate.
The notes sold at a high yield of 1.164%, almost a basis point below where they had traded before the auction. Dealers took a lower than average share of 20% of the debt, reflecting strong investor demand.
Investors now are waiting to see if demand will persist on Wednesday at the sale of $24 billion in 30-year Treasury bonds.
Reference: CNBC, Reuters
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