US dollar at four-week low on retreating Treasury yields

New York

THE dollar fell to a four-week low against a basket of currencies on Friday last week, still smarting from a sharp drop in US Treasury yields the previous session, and as investors increasingly bought into the Federal Reserve's insistence that it would keep an accommodative policy stance for a while longer.

The benchmark 10-year US Treasury yield dipped to a one-month low of 1.528 per cent overnight, moving further away from March's 1.776 per cent, its highest in more than a year, even in the face of Thursday's stronger-than-expected retail sales and employment data. On Friday, the 10-year recovered some ground to trade at 1.5675 per cent.

Minh Trang, senior FX trader at Silicon Valley Bank cited some profit-taking after the greenback's sharp appreciation in March as well as the recent retreat in Treasury yields as main reasons for the dollar's weakness. Investors' healthy appetite for riskier assets such as equities has also sapped some of the safe-haven demand the dollar typically enjoys, Mr Trang said.

Some market participants expect the dollar weakness to persist. "My best guess is the 10-year Treasuries won't move a great deal from here over the coming quarter and that sets the backdrop for the recent dynamics we've seen, with dollar weakness continuing much of this current quarter," Colin Asher senior economist at Mizuho said.

The dollar index measuring the greenback against a basket of six currencies was 0.111 per cent lower at 91.561, its lowest since March 18. For the week the index was down 0.7 per cent, set for its second straight weekly decline.

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San Francisco Fed president Mary Daly said the US economy was still far from making "substantial progress" towards the central bank's goals of 2 per cent inflation and full employment, the bar the Fed has set for beginning to consider reducing its support for the economy. That echoed Fed chair Jerome Powell's comments in several speeches over the past week that policymakers will look through near-term rises in prices amid ongoing slack in the labour market. REUTERS