The Business Times

Dollar slumps after Fed says inflation spike temporary

Published Tue, Apr 20, 2021 · 05:50 AM


THE US dollar slumped to a six-week low against major peers on Monday, with US Treasury (UST) yields near their lowest in five weeks, after the US Federal Reserve reiterated its view that any spike in inflation was likely to be temporary.

The dollar was also held down by improved risk sentiment amid a rally in global stocks to record highs.

Bitcoin stabilised after losses from April 18, when it plunged as much as 14 per cent to US$51,541, which a report attributed to news of a power outage in China.

The dollar index, which tracks it against six other currencies, fell to 91.079, not far from last week's low of 91.484, a level not seen since March 18.

The greenback's weakness was pronounced across the board on Monday, with the currency hitting multi-week lows against major peers in the G-10 group of currencies: the Japanese yen, the Swiss franc, the Australian dollar and the New Zealand dollar, and the euro.


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The 10-year Treasury yield sank as low as 1.5280 per cent last week from 1.7760 per cent at the end of last month, its highest in more than a year.

"Indeed, the USD rally is all but distant memory by now, and the currency's underperformance seems to reflect the apparent divergence in the outlook between the slumping UST yields and the rather perky bond yields elsewhere," said Valentin Marinov, head of G-10 FX research at Credit Agricole.

The European Central Bank meets on Thursday with internal divisions over the pace of bond buying, extended Covid-19 lockdowns and potential delays to the EU recovery fund forming the backdrop.

Fed Governor Christopher Waller said on CNBC on April 16 that the US economy "is ready to rip" as vaccinations continue and activity picks up, but a rise in inflation is likely to be transitory, echoing comments from other Fed officials, including Chair Jerome Powell, over the past week.

MSCI's emerging market currency index hit its highest level in a month, trading 0.2 per cent higher on the day. The Chinese yuan, which forms about 30 per cent of the index's weight, strengthened to its highest since March 23, up 0.4 per cent on the day to 6.5031 per dollar.

Bitcoin stabilised around US$57,000 after plunging on April 18.

Data website CoinMarketCap cited a blackout in China's Xinjiang region, which reportedly powers a lot of Bitcoin mining, for the selloff. REUTERS


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