Dollar falls with most Treasury yields amid scepticism on Fed

[NEW YORK] The dollar slid against most of its major peers Monday and the 5-year Treasury note's yield pulled back from a one-year high amid skepticism that US economic data are strong enough to prompt a shift by the Federal Reserve.

The Bloomberg Dollar Spot Index slumped as much as 0.4 per cent to the lowest in two weeks. The 5-year Treasury yield gave back about half of Friday's eight-basis-point increase, which unfolded during a holiday-shortened session with US stocks closed in response to stronger-than-forecast March employment data.

The reversal occurred despite a bigger-than-expected increase in the March ISM Services Index to a record high and gains for US stocks.

"With the US dollar still trading as a safe haven currency, higher equities have pushed the dollar lower against a broad range of currencies," Wells Fargo Securities LLC's Erik Nelson said via email.

With Monday's decline, the Bloomberg dollar index pared its year-to-date advance to around 2.2 per cent as both commodity currencies and traditional havens gained versus the greenback.

The Swiss franc and yen benefit from steady or falling US rates, Nelson said. The yen has been pummeled this year as the rapid backup in US rates diminished its appeal.

Meanwhile, some US Treasury strategists have taken the view that the rise in 5-year yields to pre-pandemic levels created a buying opportunity because it overestimates the chances that the economy's performance will lead the Fed to raise interest rates as early as December 2022, notwithstanding the Biden administration's US$2.25 trillion infrastructure plan.

The 5-year led Treasury yields lower, pulling back to about 0.93 per cent after briefly approaching 0.99 per cent in US trading Monday.

"Given how much the market has already pulled forward the pricing for rate hikes, the 5-year part of the curve is particularly attractive near current levels," TD Securities' Gennadiy Goldberg said. Investors "will be looking to buy if they sense that the volatility in rates is starting to stabilise."

BLOOMBERG