Dollar slips with bond yields on Treasury nomination

SYDNEY : The dollar relinquished a little of its recent gains on Monday as the pick for U.S. Treasury secretary seemed to reassure the bond market and pulled yields lower, shaving some of the currency’s rate advantage.
Yields on 10-year Treasuries slipped to 4.351 per cent, from 4.412 per cent late Friday, as President-elect Donald Trump’s choice of fund manager Scott Bessent was welcomed by the bond market as an old Wall Street hand and a fiscal conservative.
However, Bessent has also been openly in favour of a strong dollar and has supported tariffs, suggesting any pullback in the currency might be fleeting.
“Bessent has publicly lauded dollar strength following news of Trump’s election win, so I admit to being somewhat perplexed by the suggestion that the weakening in the dollar is because of his appointment,” said Ray Attrill, head of FX research at NAB.
“He is an avowed fiscal hawk, so perhaps that has something to do with it, but seeing is going to be believing in this regard.”
The dollar was likely due some consolidation having risen for eight weeks in a row for only the third time this century and many technical indicators were flashing overbought.
The index was last down 0.5 per cent at 106.950, having hit a two-year peak of 108.090 on Friday. The dollar dipped 0.4 per cent on the Japanese yen to 154.11, and further away from its recent peak of 156.76.
The euro edged up 0.5 per cent to $1.0478 and away from Friday’s two-year trough of $1.0332. Resistance is up at $1.0555 and $1.0610, with support around $1.0195 and the major $1.0000 level.
RATE OUTLOOKS DIVERGE
The single currency had taken a hit on Friday as European manufacturing surveys (PMI) showed broad weakness, while the U.S. 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 59 per cent.
At the same time, futures scaled back the chance of a quarter-point rate cut from the Federal Reserve in December to 52 per cent, compared to 72 per cent a month ago.
Markets now imply 154 basis points of ECB easing by the end of next year, compared to just 65 basis points from the Fed.
Minutes of the Fed’s last meeting are due on Tuesday and will offer more colour on the decision to cut by 50 basis points and the discussion for future easing.
Also due this week are figures on U.S. and EU inflation, which will further refine the outlook for rates.
Data on UK retail sales also disappointed, leading the market to price in more chance of a rate cut from the Bank of England, albeit in February rather than December.
That saw the pound touch a six-week low on Friday at $1.2484. Early Monday, sterling had bounced 0.4 per cent to $1.2591, but remained well short of last week’s top of $1.2714.
In the crypto world, Bitcoin was trading at $97,567 and off last week’s record top of $99,830, having run into profit-taking ahead of the symbolic $100,000 barrier.
Bitcoin has climbed more than 40 per cent since the U.S. election on expectations Trump will loosen the regulatory environment for cryptocurrencies.