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US dollar gives in to gravity and drops as US yields extend fall

The US dollar gave in to gravity on Monday and pulled further away from near 14-year highs as US Treasury yields eased from recent peaks.

[TOKYO] The US dollar gave in to gravity on Monday and pulled further away from near 14-year highs as US Treasury yields eased from recent peaks.

After rallying without pause for much of the month, the US dollar index against a basket of major currencies shed 0.7 per cent to 100.77, adding to Friday's losses.

It had popped above 102.00 on Thursday, its highest since March 2003.

The greenback underperformed against the safe-haven yen in the wake of a broader ebb in risk appetite as the Nikkei and crude oil prices fell.

The greenback had slipped late last week as investors took advantage of a pullback in US bond yields and a holiday-shortened week to consolidate gains.

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The 10-year Treasury note yield declined further on Monday to 2.326 per cent after rising to a 16-month high of 2.417 per cent on Thursday.

The US currency was down 1.3 per cent at 111.650 yen following a rise to an 8-month high of 113.900 last week. The euro was up 0.9 per cent at US$1.0667 after stooping to an 8-month trough of US$1.0518 on Thursday.

"The dollar has run out of lift as Treasuries are settling down after Thanksgiving, and before hedge funds' earnings releases and events due to take place towards the weekend," said Koji Fukaya, president at FPG Securities in Tokyo.

"When the dollar's rise stops, it's time for domestic players like exporters to sell," he added.

The US dollar has surged virtually without a rest since Republican Donald Trump was elected president earlier this month, triggering a spike in Treasury yields on heightened expectations of enlarged fiscal spending and inflation.

The US dollar could face some resistance this week ahead of potentially risk-laden events such as the midweek Organization of the Petroleum Exporting Countries (Opec) meeting and Italy's Dec 4 referendum on constitutional reform.

Crude oil has slumped amid uncertainty over whether Opec would reach an output deal. Italy's referendum could rattle financial markets by prompting the country's government to resign.

Currencies will also have Friday's US non-farm payrolls to contend with.

"Those who have been following the dollar's uptrend since early November now sit on large profits, so it is not surprising if some lock the gains in," said Masafumi Yamamoto, chief FX strategist at Mizuho Securities in Tokyo.

Still, few expect the US dollar's uptrend to end in the near term as the financial markets continue to price in the possibility of the Federal Reserve hiking interest rates more often in 2017 than initially anticipated.

"The dollar and Treasury yields did rise steeply in a short span of time. But for participants who think the bond market's 35-year bond rally is coming to an end, this is only the early stages of a dollar surge," Mr Yamamoto said.

Elsewhere, the Australian dollar extended Friday's gains and rose 0.4 per cent to US$0.7460. The Aussie has benefited as Australia's debt yields tracked the surge in Treasury yields and rose to 11-month highs.

Sterling nudged up 0.1 per cent to US$1.2497 while the New Zealand dollar added 0.4 per cent to US$0.7068.

The US dollar also fell against the safe-haven Swiss franc, losing 0.5 per cent to 1.0091 per franc, its weakest in about a week.

The yen, a fellow safety currency, also surged against the euro and pound. The euro was down 0.8 per cent at 118.990 yen and sterling lost 0.9 per cent to 139.65 yen.


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