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Dollar struggles to recover after slump to 7-week trough amid lower U.S. yields

Forex16 minutes ago (Apr 21, 2021 01:55AM ET)

(C) Reuters. FILE PHOTO: U.S. one dollar banknotes are seen in front of displayed stock graph

By Kevin Buckland

TOKYO (Reuters) -The dollar languished on Wednesday, hovering just above a seven-week low with subdued U.S. bond yields reducing the currency’s yield appeal.

The safe-haven greenback got some respite from a pullback in world stocks from record highs as flare ups in coronavirus infections from India to Canada soured the outlook for a quick global recovery.

The safety bid also bolstered the yen, which climbed to a fresh seven-week peak of 107.88 per dollar on Wednesday.

The dollar index, which tracks the U.S. currency against six major peers, was at 91.254 in Asia after slumping as low as 90.856 on Tuesday for the first time since March 3. It has declined 2.1% so far this month.

The index “has broken down through a key short-term support level at 91.30 and can see further downside to the low 90s,” with the euro rising to around $1.22, Westpac strategists wrote in a client note.

“We were looking for the (index) to top in Q3, when second derivative U.S. rebound measures crest and Europe gets her vax act together, but the early indications are that vaccinations across Europe are picking up pace already,” Westpac said.

The single currency traded at $1.20275, after touching a seven-week high of $1.2079 overnight.

The European Central Bank decides policy on Thursday, with the Federal Reserve and Bank of Japan following next week.

The benchmark 10-year Treasury yield was around 1.56%, not far from its lowest since mid-March, as it continued to consolidate following its retreat from the 14-month high at 1.7760% reached at the end of last month.

“Now that U.S. Treasury yields have started coming off, people are unwinding yen short positions,” said Tohru Sasaki, JPMorgan (NYSE:JPM)’s head of Japan market research.

The yen could strengthen to 105 per dollar in the near term, he said. Japan’s currency was as weak as 110.97 for the first time in a year at the end of last month.

Declines in U.S. yields and the dollar in April have come as evidence mounted that the Fed would be slower in tightening monetary policy than it had appeared to the market, analysts said.

Some encouragement for the euro came from the announcement that the European Union has secured an additional 100 million doses of the COVID-19 vaccine produced by BioNTech and Pfizer (NYSE:PFE).

Elsewhere though, pandemic developments triggered investor caution.

India reported 1,761 deaths from COVID-19, its highest daily toll, while Canada and the United States extended a land-border closure for non-essential travellers.

Asian equities tracked declines on Wall Street, where travel stocks weighed on sentiment.

Oil fell, dragging commodity-linked currencies lower overnight.

The Canadian dollar traded at C$1.26110 to the greenback in Asia, following its biggest plunge in nearly two months on Tuesday. The Bank of Canada is due to announce a policy decision later Wednesday.

The Australian dollar, a barometer for risk appetite, weakened 0.2% to $0.77057 after sliding 0.4% overnight.

In cryptocurrencies, bitcoin traded around $55,500, consolidating following its dip to as low as $51,541.16 on Sunday. It set a record high at $64,895.22 on April 14.

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Currency bid prices at 521 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.2028 $1.2036 -0.07% -1.56% +1.2044 +1.2025

Dollar/Yen

107.9900 108.0950 -0.02% +4.63% +108.1270 +107.8800

Euro/Yen

129.90 130.08 -0.14% +2.35% +130.1100 +129.8400

Dollar/Swiss

0.9164 0.9159 +0.07% +3.59% +0.9166 +0.9154

Sterling/Dollar

1.3921 1.3938 -0.13% +1.89% +1.3948 +1.3917

Dollar/Canadian

1.2608 1.2612 +0.00% -0.96% +1.2615 +1.2598

Aussie/Dollar

0.7708 0.7725 -0.24% +0.18% +0.7735 +0.7704

NZ

Dollar/Dollar 0.7167 0.7170 -0.04% -0.19% +0.7185 +0.7163

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

Dollar struggles to recover after slump to 7-week trough amid lower U.S. yields

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