Euro slips to two-week lows as U.S. yields rise

The dollar gained broadly on Monday as widening U.S. Treasury yields and expectations of more fiscal stimulus lifted the greenback against its rivals, with the euro falling to a two-week low. President-elect Joe Biden, who takes office on Jan. 20 with Democrats able to control both houses of Congress, has promised “trillions” in extra pandemic-relief spending. Ordinarily, the extra spending plans would force investors to worry about rising inflation and its detrimental impact on the U.S. dollar in a weak economy but the currency has been supported in recent weeks thanks to rising U.S. yields.

Measured in inflation-adjusted terms, U.S. 10-year real Treasury yields are rising faster than their European counterparts. As a result, the euro fell to $1.2167, its lowest since Dec. 25, after climbing to $1.2349 last week. “It is hardly surprising that the recent acceleration in real U.S. yields has reminded the FX markets to end its focus on inflation and to assume a more comprehensive approach in its dollar valuation,” Commerzbank strategists said in a note. “That means: things are not looking so bad for the dollar at present that EUR-USD levels of 1.2350 and above would currently be justified.”

The nominal yield on benchmark 10-year U.S. debt is up more than 20 basis points to 1.1187% this year, helping the dollar to rise to a one-month high of 104.20 against the Japanese yen. The dollar index has lost roughly 12% since a three-year peak in March. However, it is now more than 1.3% above the almost three-year low it hit last week. It rose 0.1% to 90.418 on Monday.

Euro slips to two-week lows as U.S. yields rise, Reuters, Jan 11