- Dollar index rebounding from nearly three-year low
- Biden has promised "trillions" in extra spending
- Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
The dollar held four days of gains against major peers on Tuesday as the prospect of massive fiscal stimulus pushed U.S. yields higher.
President-elect Joe Biden, who takes office on Jan. 20 with his Democratic party in control of both Houses, has promised "trillions" in extra pandemic-relief spending.
The dollar index =USD has rebounded from a nearly three-year low reached last week as the benchmark 10-year U.S. Treasury yield US10YT=RR topped 1% for the first time since March and rose as high as 1.148% overnight.
The support from rising yields has so far trumped worries that the extra spending would increase debt levels and trigger faster inflation, which ordinarily would make the greenback less attractive.
Many analysts expect the U.S. currency to resume the decline that saw the dollar index lose close to 7% in 2020 as expanded stimulus and vaccine rollouts brighten the global economic outlook. Investors tend to buy the dollar when they are looking for safer investments.
The dollar index was little changed at 90.578 in Asian trading, having risen as high as 90.73 overnight for the first time since Dec. 21. It dipped to 89.206 on Jan. 6, a level not seen since March 2018.
"It's complicated because higher U.S. yields are giving the dollar a bounce, but stimulus could support U.S. equities, and the dollar would remain weak," said Osamu Takashima, head of G10 FX strategy at Citigroup Global Markets Japan in Tokyo.
"In the medium-term, we remain bearish on the dollar. Dollar assets look expensive."
Speculators in the FX market are extremely bearish on the dollar, U.S. Commodity Futures Trading Commission data released on Friday showed.
The greenback added 0.1% to 104.305 yen JPY=EBS , after rising to a one-month high of 104.40 on Monday.
The euro EUR=EBS was largely steady at $1.21425 after slipping to $1.21320 in the previous session for the first time since Dec. 21.
Currency markets mostly shrugged off a Democratic push to impeach President Donald Trump following last week's siege of the Capitol.
"We do not expect U.S. political theatre to be a major driver of the USD," Commonwealth Bank of Australia currency analyst Joe Capurso wrote in a client note.
"Market participants are looking to the policies of the Biden presidency rather than the dying days of the Trump presidency."
"Given the USD is modestly overvalued, we expect the recent lift in the USD to be limited," he added.
Meanwhile, China's yuan edged up against the dollar on demand for cash ahead of next month's Lunar New Year holiday.
Onshore spot yuan CNY=CFXS opened at 6.4770 per dollar and was changing hands at 6.4712 at midday, 81 pips stronger than the previous late session close.
Bitcoin BTC=BTSP was trading at $35,186 as its red-hot rally has faltered since it soared to an all-time high of $42,000 on Jan. 8.
======================================================== Currency bid prices at 2:39PM (539 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar EUR=EBS $1.2146 $1.2150 -0.03% -0.59% +1.2162 +1.2139 Dollar/Yen JPY=D3 104.2650 104.1500 +0.12% +0.96% +104.3120 +104.1300 Euro/Yen EURJPY= 126.64 126.67 -0.02% -0.22% +126.7700 +126.5800 Dollar/Swiss CHF=EBS 0.8911 0.8904 +0.11% +0.75% +0.8916 +0.8897 Sterling/Dollar GBP=D3 1.3532 1.3515 +0.13% -0.94% +1.3532 +1.3509 Dollar/Canadian CAD=D3 1.2770 1.2786 -0.07% +0.34% +1.2789 +1.2772 Aussie/Dollar AUD=D3 0.7696 0.7695 +0.03% +0.06% +0.7710 +0.7687 NZ NZD=D3 0.7167 0.7160 +0.11% -0.18% +0.7175 +0.7159 Dollar/DollarAll spots FX= Tokyo spots AFX= Europe spots EFX= Volatilities FXVOL= Tokyo Forex market info from BOJ TKYFX
