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US dollar sags as US yields stay low, rate hike expectations fade

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The US dollar sagged against its major peers on Monday, losing traction as US Treasury yields stayed low amid fading expectations that the Federal Reserve to hike interest rates again later this year.

[TOKYO] The US dollar sagged against its major peers on Monday, losing traction as US Treasury yields stayed low amid fading expectations that the Federal Reserve to hike interest rates again later this year.

The US dollar index against a basket of six major currencies was a fraction lower at 97.239, adding to Friday's losses when it fell 0.4 per cent.

The index had climbed to a one-month peak of 97.871 earlier last week, supported by expectations that the Fed, fresh from a mid-June rate hike, would tighten policy again as early as September.

But such expectations ebbed over the course of a week, with investors doubtful of another rate increase this year as US data on balance have fallen short of forecasts.

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"The main reason behind the weakness of the dollar, which has lost its upward momentum since the Fed rate hike, is US yields stuck at low altitude," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"Yields appear to better reflect US fundamentals relative to equities, and in focus this week are political developments and the various indicators due for release."

US data due next week include the June consumer confidence indicator, pending home sales, crude oil inventories, revised first quarter GDP and the PCE price index.

Yields on the benchmark 10-year Treasury note rose briefly after the Fed tightened policy this month but have drifted lower since as expectations of low inflation continued to boost demand for longer-dated debt. Friday's decline took it closer to a seven-month low of 2.103 per cent plumbed on June 14.

The greenback was down 0.1 per cent at 111.235 yen, taking another step away from a near one-month high of 111.790 touched last Tuesday.

The euro added 0.05 per cent to US$1.1198 after rising on Friday to a four-day high of US$1.1209.

The pound was buoyant after making strong gains on Friday, helped by a shift in expectations that has some in the market backing the Bank of England to raise interest rates within months.

Sterling was 0.2 per cent higher at US$1.2745, its strongest in six days.

The Australian dollar inched up 0.05 per cent to US$0.7569.

The Aussie was battered earlier last week as crude oil prices tumbled to 10-month lows, although it managed to trim some of the losses on Friday as oil prices settled.

REUTERS

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