Dollar Still Near One-Month Lows; Yields Down

The dollar traded largely unchanged in early European forex trading on Monday, remaining near a one-month low. Treasury yields have been drifting near the lowest levels in five weeks. 

The 10-year Treasury yield last traded at 1.55%. It was a sharp fall from the high of just short of 1.78% seen at the end of March. This was also reducing the appeal of dollar-denominated assets as an investment.

ING analysts said in a note that one of the biggest perceived risks to the 2021 recovery story playing out in financial markets is that of a bond tantrum or a disorderly rise in U.S. yields. 

It has thus been surprising, the analysts said, to see the large decline in U.S. yields, despite above consensus U.S. CPI and retail sales.

Currencies’ Movements

The Dollar Index was marginally lower at 91.523 at 2:55 AM ET (0755 GMT), not far from last week’s low of 91.484. This was a level not seen since March 18.

The USD/JPY pair edged down 0.2% at 108.53. EUR/USD lost 0.1% to 1.1968, near the highest since March 4. 

The GBP/USD added 0.2% at 1.3857, while the risk-sensitive AUD/USD gained 0.1% to 0.7741.

The Federal Reserve has been persistent in communicating with the market about looking through rises in inflation. The U.S. central bank is considering them temporary, keeping its’ ultra easy monetary policies in place for some time.

On Friday, Fed Governor Christopher Waller continued the theme, saying the U.S. economy “is ready to rip”. This is as vaccinations continue and activity picks up. However, a rise in inflation is likely to be transitory.

ING also said they are tempted to say that the Dollar Index (DXY) made an important corrective high at 93.44 at the end of last month. And is now heading for a retest of the year’s lows at 89.21, ING added.

Later this week, the European Central Bank meets virtually and not much is expected. That is with policymakers keen to avoid rocking the market. Weaning financial markets off the emergency stimulus is likely to be a fraught task.

Elsewhere, the USD/RUB rose 0.5% to 76.192. The U.S. warned of “consequences” if jailed opposition leader Alexey Navalny dies in prison.

This is worsening the conflict over the dissident who has already survived an alleged assassination attempt.

On Thursday, the U.S. ordered a raft of new sanctions against Russia. including restrictions on buying new sovereign debt. This was in response to allegations that Moscow was behind a hack on SolarWinds and interfered with last year’s U.S. election.