SINGAPORE (Reuters) – The US dollar was tied up on Tuesday, as vaccine optimism propelled the British pound to an almost three-year high, as higher oil prices and dynamic expectations of the global recovery supported currencies exposed to commodities and trade.
In trade thinned by the Lunar New Year holiday in China and Monday holidays in the United States, the positive mood also weighed on the safe haven yen which made a weeklong low on the dollar overnight and fell over two years on the euro and the Australian.
The US dollar index, which measures the dollar against a basket of six major currencies, sat at 90.351, not far above the two-week low it hit last Wednesday.
The Chinese yuan, the preferred vehicle for playing on the dollar’s weakness in Asia, was on the verge of strengthening beyond 6.4 per dollar for the first time since mid-2018 and was last at 6.4033 in offshore trading.
The risk-sensitive Australian dollar held close to Monday’s one-month high at $ 0.7785.
The dollar tends to underperform when you see this overall positive sentiment in the markets, said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.
There are also inflationary pressures particularly from energy prices, he said, which pushes up nominal yields – adding another weight to the yen as it can attract inflows from Japan – all by keeping real Treasury yields stable.
Bitcoin has hovered just below $ 50,000 as profit taking halted the cryptocurrency’s steep rally which has lifted it by over 60% in 2021 so far.
The yield on benchmark ten-year US Treasuries jumped five basis points to 1.2501% at the start of Asian trade on Monday, as most major currencies were flat.
The British pound, which topped $ 1.39 for the first time in nearly three years on Monday, held steady at $ 1.3912. It also remained stable at 87.15 pence to the euro, its highest level since May 2020.
The pound sterling gained up to 2.5% against the dollar in less than two weeks, as the aggressive roll-out of the UK’s COVID-19 vaccination program has raised hopes that its economy will be able to recover more faster than its European peers.
The euro held steady at $ 1.2132 on Tuesday while the yen, which has fallen 2% so far this year, has groomed losses to 105.36 per dollar. The yen also hit its lowest since late 2018 against the euro and the Australian dollar, and hit a three-year low against the Swiss franc.
The yen was the worst performing currency of 2021, with its negative correlation with U.S. Treasury bill yields proving to be the main dragging down factor, Francesco Pesole, currency strategist at Dutch bank ING, said in a note to clients.
If we add weak demand for safe haven as the global recovery accelerates, a further reduction in net yen long positions could be considered.
On Tuesday, investors look to eurozone growth estimates, a survey of German sentiment and U.S. manufacturing data to gauge the relative pace of the global pandemic’s recovery.
Reporting by Tom Westbrook; Editing by Sam Holmes
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