Dollar squeezed anew as stimulus hopes brighten mood

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The U.S. dollar came under gentle pressure in Asia on Wednesday and the euro found support as investors were buoyed by ebbing political turmoil in Italy, improving sentiment in Germany and a renewed focus on U.S. pandemic relief spending.

While the world will be watching Joe Biden’s inauguration as U.S. President at noon in Washington (1700 GMT), traders were more focused on his policies than the ceremony.

U.S. Treasury Secretary nominee Janet Yellen urged lawmakers to “act big” on stimulus spending at her confirmation hearing and said she believes in market-determined exchange rates, without expressing a view on the dollar’s direction.

The dollar index backed away from a one-month high after her remarks and benchmark ten-year U.S. Treasury yields, which have lately surged on borrowing expectations, slipped a little in their steadiest session of 2021 so far.

The dollar index was steady at 90.379 on Wednesday.

The euro climbed as far as $1.2150, having extended gains made overnight, when it bounced off support around $1.2050 after the Italian government survived a confidence vote and a ZEW investor sentiment survey beat forecasts.

The risk-sensitive Australian and New Zealand dollars edged up to also hold modest gains. The Aussie was last up 0.3% at $0.7719 and the kiwi up 0.2% to $0.7130.

“We think Yellen is at best indifferent to a weakening dollar, and that in itself may be insufficient to turn the tide,” said OCBC Bank strategist Terence Wu, referring to a downtrend that has seen the dollar index lose about 12% since last March.

“Coupled with the market re-focusing on fiscal stimulus, the underlying risk-on, weak-dollar dynamic may re-assert dominance,” he said, leaving the bank bearish on the dollar as the effects of the recent gains in U.S. yields fade.

Positioning data shows investors overwhelmingly short dollars as they figure budget and current account deficits will weigh on the greenbacks.

Analysts at Nomura said last year’s downtrend might resume again soon and were confident enough to suggest adding to bets the greenback will drop against the South Korean won, which it did slightly through the Asia session.

The euro was steady on the pound and held gains against the yen.

The safe-haven yen had been sold broadly as risk sentiment improving mood on Tuesday, but caution in Tokyo, where equities slipped, supported it against the dollar. The yen last changed at 103.76 per dollar.

Sterling rose marginally to $1.3651, drawing support from a prediction by the Bank of England’s chief economist that Britain’s economy would begin to “recover at a rate of knots” in the second half of the year.

China’s yuan gained 0.2% to 6.4683 onshore despite the People’s Bank of China injecting 280 billion yuan into short-term funding markets to offset seasonal cash demands as well as a surge of money in to Hong Kong stocks. [CNY/]

There was no change to China’s benchmark lending rates, as expected.

Elsewhere in Asia, Malaysia’s central bank was due to the announce the outcome of its policy review at 3 p.m (0700 GMT). Nine of 15 economists polled by Reuters expect it will cut benchmark interest rates to historic lows.

Over in Canada, analysts saw a small chance of a ‘micro rate cut,” with the central bank moving its benchmark rate by less than 25 basis points, avoiding negative rates. A decision is due at 1500 GMT. The loonie rose marginally to 1.2708 per dollar.

Source: REUTERS

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