Par Hideyuki Sano
TOKYO (Reuters) – The US dollar gave up short, early gains on Monday as growing concerns over the slowing US economic recovery after the coronavirus pandemic hampered the currency after a brief rebound late last week.
The euro traded almost unchanged at $ 1.1768 (), after a low of $ 1.1741 hit earlier in the session, although it is still more than a cent below the two-year high from $ 1.1908 on Friday.
The common currency has hit a slowdown on some technical signs of short-term overbought, and long positions of speculators hit an all-time high, said Minori Uchida, chief currency analyst at MUFG Bank.
“But the dollar’s decline is likely to continue. US real interest rates are falling even as the country runs a large current account deficit, a situation we haven’t had for a long time, ”he said.
U.S. bond yields fell to their lowest level since the pandemic-triggered market crisis in March, with the 10-year rate () slipping nearly 0.50%, undermining the dollar’s yield appeal.
US bonds looked even less attractive once adjusted for inflation expectations, with the yield on inflation-protected 10-year US Treasuries () falling to a record low below minus 1%.
The dollar changed hands at 105.90 yen
Investors have reason to be concerned about the US outlook, as policymakers have so far struggled to strike a deal to pump more money into the world’s largest economy, even in the form of unemployment benefit expanded, valued at around $ 75 billion per month and accounting for nearly 5% of personal income. , expired on Friday.
White House Chief of Staff Mark Meadows said on Sunday he was not optimistic that a deal would be reached soon on a deal for the next round of legislation aimed at relieving Americans hard hit by the coronavirus epidemic.
A growing budget deficit in the United States to fund the stimulus has prompted Fitch Ratings to revise the outlook for the United States’ triple A rating from stable to negative.
While the market did not show an immediate reaction to the downward revision, it still marked a stark contrast to the European Union, which was bolstered by Standard and Poor’s (NYSE 🙂 decision to raise its rating outlook from stable to positive.
Sentiment towards the euro improved after European Union leaders agreed to a € 750 billion economic stimulus fund last month – while jointly going into debt to donate a boost to regional cooperation.
The deal could be conducive to a changeover to the euro, at the expense of the dollar, among managers of the official currency reserve, said Zach Pandl, co-director of global foreign exchange operations at Goldman Sachs (NYSE 🙂 in New York.
“The outlook for the euro in reserve portfolios looks brighter. In particular, the new EU stimulus fund tackles two fundamental issues that have held back the internationalization of the single currency: macroeconomic instability due to limited fiscal transfers and a shortage of liquid bonds. ” he said.
Some traders believe that the dollar’s decline since late last month has been so large that it may have been partly due to the reallocation of official reserves.
Traders are also watching for heightened tensions between Washington and Beijing on many fronts, including trade, technology and geopolitics. In recent days, US President Donald Trump has threatened to ban TikTok, a popular video app run by China’s ByteDance.
Secretary of State Mike Pompeo said on Sunday that Trump would soon take action against Chinese software companies that provide data directly to the Beijing government, posing a risk to U.S. national security.