Dollar slumps as expectations of flat rates grow

London

THE US dollar sank to a six-year trough against the Canadian dollar and teetered near multi-month lows versus other major peer currencies on Tuesday, as Treasury yields stalled amid renewed expectations the United States will not hike interest rates anytime soon.

On May 17, Dallas Federal Reserve president Robert Kaplan reiterated that he does not expect interest rates to rise until next year, fuelling a further decline in bets that inflationary pressure could force the Fed to act sooner.

This week, a host of Fed policymakers are scheduled to speak, and the US central bank will also release minutes from its most recent meeting, which may give indications about where monetary policy is headed.

The growing market consensus is that the Fed will tolerate what it sees as a temporary acceleration in inflation, which will keep the dollar lower against most major currencies.

The benchmark 10-year US Treasury yield stood at 1.6471 per cent, extending a pullback from a five-week high reached last week. The dollar traded above US$1.22 to the euro, the single currency hitting its highest against the greenback since Feb 25.

The British pound rose past US$1.42 for the first time since Feb 24. Sterling has been buoyed as investors cheer the gradual lifting of strict coronavirus restrictions.

The Canadian dollar advanced to a six-year high of 1.2013 to the greenback, aided by a rise in oil prices. Up 5 per cent against its US peer year-to-date, the trader-nicknamed "loonie" is the best performing G10 currency on the year.

The dollar lost 0.3 per cent to 108.96 yen. The Japanese currency is the worst-performing G10 currency this year, down over 5 per cent year-to-date against the greenback amid worries about Japan's slow pace of vaccinations and weakness in the greenback.

Some investors were already scaling back expectations for a Fed rate hike this year, and Mr Kaplan's comments gave traders even more incentive to sell the dollar.

The onshore yuan edged up to 6.4188 per dollar, not far from an almost three-year high reached last week. The Australian and New Zealand dollars rose as much as half a per cent each against their US counterpart.

In the cryptocurrency market, Bitcoin rose 3.3 per cent to US$45,023.53 but was still close to a three-month low after Tesla boss Elon Musk dented enthusiasm for the digital asset. REUTERS