TOKYO (JAPAN) – Buoyed by the prospects of huge fiscal stimulus, the dollar held four days of gains against major peers on Tuesday.
Joe Biden, who assumes office on Jan. 20, has promised to provide “trillions” in extra pandemic-relief spending.
The dollar index showed a rebound from an almost three-year low reached last week. This comes as the benchmark 10-year US Treasury yield topped 1% for the first time since March and climbed as high as 1.148% overnight.
The support from rising yields has laid to rest concerns about extra spending increasing debt levels and causing faster inflation.
As expanded stimulus and vaccine roll-outs come as light at the end of the tunnel, many analysts believe the dollar to resume the decline that saw the dollar index lose close to 7% last year. It appears that investors prefer to buy the greenback when they explore safer investment avenues.
At 90.578 in Asian trading, the dollar index remained practically unchanged after having risen as high as 90.73 overnight for the first time since Dec. 21. It went down to 89.206 on Jan. 6, something unprecedented since March 2018.
“It’s complicated because higher US yields are giving the dollar a bounce, but stimulus could support US equities, and the dollar would remain weak,” said Osamu Takashima, head of G10 FX strategy at Citigroup Global Markets Japan in Tokyo.
“In the medium-term, we remain bearish on the dollar. Dollar assets look expensive.”
US Commodity Futures Trading Commission data released on Friday revealed that speculators in the FX market are extremely bearish on the greenback.
The US dollar added 0.1% to 104.305 yen, after climbing to a one-month high of 104.40 on Monday.
After slipping to $1.21320 in the previous session for the first time since Dec. 21, the euro remained largely steady at $1.21425.
Meanwhile, China’s yuan edged up against the dollar on demand for cash ahead of next month’s Lunar New Year holiday. Bitcoin was trading at $35,186 after its surge faltered having reached an all-time high of $42,000 on Jan. 8.