NEW YORK: The dollar retreated on Tuesday after six straight days of gains, as US Treasury yields dipped and investors looked for fresh incentives to buy the currency in the wake of its nearly 7 percent rally since mid-February.
The dollar’s recent uptrend has been supported by generally upbeat US economic data that has kept the Federal Reserve on track to raise interest rates at least two more times this year.
In contrast, other major central banks such as the Bank of Japan and European Central Bank are not in a tightening mode.
“The US dollar may require a fresh dose of catalysts to sustain its nascent resurgence,” said Mazen Issa, senior FX strategist at TD Securities in New York.
“Against a backdrop of higher rates, including the overly-emphasized 3 percent mark in US 10-year yields and a very fully-priced Fed, the dollar may have exhausted the divergence narrative,” he added.
The divergence referred to the difference in monetary policies between the Fed and other central banks, which has been a major prop for the dollar.
In mid-morning trading, the dollar index was down 0.1 percent at 93.584, after hitting a five-month high on Monday. The index, which measures the dollar against a basket of currencies, was on track for its largest daily loss in two weeks.
The dollar was supported on Monday on signs that the United States and China were making progress to resolve their trade conflict. On Tuesday, China said it would cut import tariffs for automobiles, opening greater access to the world’s largest auto market, in a further sign of easing trade tensions.
US Treasury yields pulled back from last week’s seven-year highs, encouraging traders to cash in bullish dollar bets, said Gavin Friend, senior markets strategist at NAB in London.
US 10-year yields still traded above 3 percent on Tuesday.
TD’s Issa believes Wednesday’s release of the minutes of the last Fed policy meeting could prove a major driver, though possibly a negative one.
“The minutes should contain dovish undertones as we are likely to see a degree of comfort on an inflation overshoot,” Issa said.
In other currency pairs, the dollar rose against the euro, which slipped 0.1 percent to $1.1778 amid political uncertainty in Italy. The country’s anti-establishment 5-Star Movement and the far-right League on Monday proposed Giuseppe Conte as prime minister to lead their coalition government.
Analysts at Rabobank said they had lowered their target for euro versus the dollar to $1.15.
“While dollar strength is still a factor, euro weakness is … a large part of the story,” the bank said in a note to clients.
The dollar, meanwhile, slipped 0.1 percent against the yen to 110.965, after touching a four-month peak on Monday.
Source: Brecorder
