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The dollar falls along with US yields despite the strengthening of the US recovery

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The dollar fell to a nearly two-week low against a basket of its peers on Tuesday, moving in line with the decline in Treasuries yields from recent highs despite signs of a strong US economic recovery.

The dollar index wallowed to its lowest level since March 25, slipping again at the start of Asian trading after falling 0.4% on Monday. The softer turn comes after hitting a nearly five-month high on Wednesday last week.

The yen continued to recover from a more than one year low near 111 to the dollar, briefly returning below 109 on Tuesday. The euro extended its rise from a nearly five-month low near $ 1.17 to trade as low as $ 1.1821.

The Australian dollar, seen as an indicator of risk appetite, edged up to $ 0.7657 after advancing 0.8% earlier in the week. The Reserve Bank of Australia will announce a policy decision later on Tuesday, with no expected changes.

The greenback has risen sharply this year, as have Treasury yields, as investors bet on a rebound from the US pandemic faster than other developed countries amid a massive stimulus and aggressive vaccinations.

But the dollar’s decline this week, even after Friday’s much stronger-than-expected monthly payroll data was followed by the highest-ever reading for service sector activity on Monday, may indicate that a large part of the bullish outlook is taken into account for now.

“While the United States looks exceptional, the normalization of COVID over time means the rest of the world will converge,” wrote Mark McCormick, global head of currency strategy at TD Securities, in a client note.

“The level of the USD has now exceeded the resumption of non-US growth expectations,” meaning “there is room for the USD to pause” in its recent uptrend, he wrote.

Benchmark 10-year Treasury yields continued to decline on Tuesday, plunging below 1.7% at the start of the Asian session, after peaking at 1.776% last week – a level not seen since January of the year last.

It was even then that the strong economic outlook sent US stocks to record highs.

The dollar has generally risen as stocks have gained in recent months. Investors are now watching to see if that relationship may have changed.

“The trickiest thing for markets right now is figuring out how sensitive the dollar is to good US economic news,” said Erik Nelson, macro strategist at Wells Fargo in New York.

“This is a huge question because if we enter a phase where the dollar is no longer a safe haven and more of a ‘risk on’ the currency, it is a big regime change.”

In cryptocurrencies, bitcoin strengthened after a two-day gain to trade around $ 59,192 on Tuesday, closing the gap to the record high of $ 61,781.83 reached in the middle of last month.

The cryptocurrency’s market cap hit an all-time high of $ 2 trillion on Monday, according to data and market followers CoinGecko and Blockfolio, as gains in recent months have attracted demand from institutional investors and investors alike. detail.

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