NEW YORK: The dollar recoiled from two-year highs on Monday, tracking a sharp decline in US Treasury yields amid trust that Donald Trump’s pick for the next US Treasury secretary will promote more fiscal discipline than investors had been fearing.
The euro was up 0.85% at $1.0506, recovering from a fall on Friday to its lowest price against the dollar since Nov. 30, 2022. Against the Japanese yen, the dollar weakened 0.58% to 153.85 yen.
Yields on 10-year Treasuries fell more than 11 basis points to below 4.3% as President-elect Trump’s choice of fund manager Scott Bessent, announced late on Friday, was welcomed by the bond market as an old Wall Street hand and fiscal conservative. Two-year yields also fell.
However, Bessent has also openly favoured a strong dollar and supported tariffs, suggesting any pullback in the currency might be fleeting.
“I think it’s an exaggerated response. We still don’t know how much power is going to be in the White House and how much power is gonna be given to the cabinet,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“I don’t think we really know that much that we didn’t know on Friday. I think it says more about market positioning than it does about the policies of the new administration,” Chandler added.
The dollar index measuring the greenback against a basket of six rival currencies, including the yen and the euro, fell 0.16% to 106.76, down more than 1% from its two-year high of 108.09 on Friday.
Trading was thin ahead of Thursday’s US Thanksgiving holiday, and Friday, which many in the market also take off.
The only major data on tap this week is on Wednesday, with the second reading of third quarter US GDP and the October Personal Consumption Expenditures price index.
The greenback has risen for eight consecutive weeks with many technical indicators flashing overbought on bets Trump’s policies would stoke inflation and further support the dollar.
“Pricing in various US assets was pushed quite aggressively in one direction for three weeks,” said Geoff Yu, senior macro strategist at BNY. “Markets probably need to take a breather when it comes to their dollar positions.”
The euro zone’s single currency had taken a hit on Friday as European manufacturing surveys (PMI) showed broad weakness, while US surveys surprised on the high side.
The contrast saw European bond yields fall sharply, widening the gap with Treasury yields to the benefit of the dollar. Markets also priced in more aggressive easing from the European Central Bank, with the probability of a half-point rate cut in December rising to about 40%.
At the same time, futures scaled back the chance of a quarter-point rate cut from the Federal Reserve in December to 51%, from 75% a month ago, according to CME Group’s Fed Watch Tool.
Markets now imply about 150 basis points of ECB easing by the end of next year, compared to around 70 basis points from the Fed.
Minutes of the Fed’s last meeting are due on Tuesday and will offer more clues on the US central bank’s thinking behind policy moves so far.
Also due this week are figures on US and EU inflation, which will further refine the outlook for rates.
Sterling strengthened 0.44% to $1.2586 after hitting a six-week low on Friday at $1.2484.
In the crypto world, bitcoin was trading at $96,493.00, consolidating last week’s run up to a record high of $99,830, having run into profit taking ahead of the symbolic $100,000 barrier.
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