Dollar under pressure as yield support fades

© Reuters. FILE PHOTO: A picture illustration shows U.S. 100-dollar bank notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

By Stanley White

TOKYO (Reuters) – The dollar teetered near multi-month lows against European currencies on Tuesday as Treasury yields stall due to renewed expectations that U.S. interest rates will remain low for an extended period.

Dallas Federal Reserve President Robert Kaplan on Monday reiterated his view that he does not expect interest rates to rise until next year, causing a further decline in bets that inflationary pressure could force the Fed to act sooner.

This week a host of Fed policymakers are scheduled to speak, and the U.S. central bank will also release minutes from its most recent meeting, which will give traders a lot of hints about where monetary policy is headed this year.

However, the growing consensus is that the Fed will tolerate what it sees as a temporary acceleration in inflation, which will keep the dollar lower against most major currencies.

“The most important point is where are yields headed,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.

“Yields are capped, reflecting expectations that U.S. monetary policy will remain easy. This places the dollar under downward pressure.”

Against the euro, the dollar traded at $1.2157, close to the weakest since Feb. 26.

The British pound bought $1.4151, near its strongest since late February.

Sterling has been buoyed recently as investors cheer the gradual lifting of strict coronavirus restrictions on economic activity.

The Canadian dollar traded near a six-year high against the greenback, supported by a rise in oil prices.

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The dollar held steady at 109.22 yen. The currency pair has been locked in a narrow range as worries about Japan’s slow pace of coronavirus vaccinations offset weakness in the greenback.

The yen fell against the British pound and the Antipodean currencies after data showed Japan’s economy contracted more than expected due to coronavirus infections..

Some investors were already scaling back expectations for a Fed rate hike this year, and Kaplan’s comments gave traders even more incentive to sell the dollar.

However, there are some exceptions. The dollar has managed to gain against emerging Asian currencies due to concern about a spike in coronavirus infections in Taiwan and Singapore.

The Australian and New Zealand dollars have also stopped rising against the greenback recently due an inability to break through technical resistance levels, some traders say.

In the cryptocurrency market, bitcoin rose 2.19% to $44,505 but was still close to a three-month low amid doubts about Tesla’s boss Elon Musk’s enthusiasm for the digital asset.

Rival digital currency ether edged up to $3,361, steading from a two-week low reached on Monday.

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