US dollar rebounds amid growing optimism

London

THE US dollar rebounded from a near two-week low on Tuesday as short-term optimism about the outlook for the US economy prompted investors to consolidate positions after a sell-off overnight.

April has got off to a weak start for the greenback as hedge funds cut their long positions on the currency, despite an encouraging US jobs report on Friday and a solid US services activity reading on Monday.

The US dollar index sank as low as 92.527 in Asia, its weakest since March 25 before trimming some overnight losses.

The U-turn comes less than a week after it hit an almost five-month high at 93.439.

But overall sentiment turned positive for the US dollar in quiet London trading as bond yields stabilised and European stocks hit a record high.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The US dollar index advanced

0.14 per cent to 92.70. On Monday, it fell 0.43 per cent, its biggest single-day drop since March 17, showed Refinitiv data.

"It is difficult to be pessimistic on the dollar as the US economy is already stronger than Europe's thanks to fewer lockdowns, is miles ahead in the vaccination race, and has more stimulus coming," said Marios Hadjikyriacos, an investment analyst at brokerage XM.

The greenback has risen this year, along with Treasury yields, as investors bet the US would recover faster from the pandemic than other developed nations on massive stimulus and aggressive vaccinations. At 2.5 per cent, March's was the biggest monthly gain for the US dollar since the end of 2016.

However, some analysts expect further dollar gains to be difficult. More evidence is needed that the US reflationary advantage versus other major economies is gaining strength.

Benchmark 10-year Treasury yields extended their retreat on Tuesday, dipping below 1.7 per cent early in early London trading from a peak of 1.776 per cent last week - a level not seen since January of last year.

"The US dollar level has now outstripped the pick-up in non-US growth expectations," meaning "there's room for a US dollar pause" in its recent uptrend, wrote Mark McCormick, the global head of foreign-exchange strategy at TD Securities, in a client note.

The pause in the dollar's drop also undercut the euro's advances. It struggled to hold above US$1.18, with pandemic-linked activity casting a shadow over the near-term economic outlook. REUTERS