Vaccine hopes boost euro; dollar dips amid subdued US yields

The dollar sank to a fresh 6-1/2-week low against major peers on Tuesday as the euro led a
rally on the back of a brightening outlook for the region’s vaccination programme.

The dollar had already been losing traction as US bond yields retreated from a 14-month peak touched last month, reducing the greenback’s yield allure.

The euro rose as high as $1.20715 for the first time since March 3, while the British pound touched a fresh
one-month high at $1.40090, building on a 1 per cent jump overnight.

Some analysts say support for the euro likely came from the announcement that the European Union has secured an additional 100 million doses of COVID-19 vaccine by BioNTech and
Pfizer.

“Europe is really the main region which is going to see accelerating vaccinations this quarter. And later in the year, we will see accelerating vaccinations, broadly, in emerging market economies,” said Zach Pandl, co-head of foreign exchange strategy for Goldman Sachs in New York.

“The US got ahead of the curve in the first quarter, but other countries are going to be quickly catching up.”
The dollar index dropped as low as 90.877, the weakest since March 3, having lost some 2.7 per cent from its five-month peak at 93.439 hit last month.

The US currency fell to as low as 107.975 yen, its weakest in more than six weeks.

The moves are the reverse of what was happening in the first three months of the year, when the dollar gained against the very same major currencies as yields rose on US Treasuries and offered higher returns on the greenback.

At that time, bond investors bet that massive fiscal stimulus in the United States would spur faster inflation, leading to an earlier exit from the Federal Reserve’s monetary easing programme.

But repeated assurances from Fed policymakers this month that near-term price pressures will be transitory seem to have soothed markets.

“I think that people are quite comfortable … that the dollar is likely to be weaker structurally for longer,” said Andrew Gillan, a portfolio manager at Janus Henderson Investors.

“And I don’t think we’ve seen enough evidence yet of that changing, even with a little bit of recent strength.”
The 10-year US Treasuries yield hit a one-month low of 1.529 per cent last week. Though it ticked up to 1.615 per cent on Tuesday, it stood well below its March peak of 1.776 per cent.

“One of the probably most important developments in macro markets over the last month has been a stability in US rates,” said Goldman’s Pandl.

“That also opens up room for dollar weakness against a broad set of currencies.”

The Australian dollar rose as high as $0.7800 for the first time in a month after Reserve Bank of Australia
policymakers said in minutes of their meeting this month that the country’s economic recovery has surpassed all expectations, with an “above-trend” expansion likely this year and next.

The offshore Chinese yuan firmed to as strong as 6.4885 per dollar, also a one-month high.
In cryptocurrencies, bitcoin slipped to around $55,000, on track for a fifth straight day of losses.

It sank as low as $51,541.16 on Sunday, after hitting a record high of $64,895.22 just days earlier.
Despite the retreat, the digital token has still almost doubled in value so far this year, after more than quadrupling in 2020.

“The recent drop in price for BTC definitely damaged the technical picture: The old resistance level around $60,000 should have held up and catch the decline, but it did not,” Julius de Kempenaer, senior technical analyst at Stockcharts.com, said by email.

However, the “long-term trend for BTC — and crypto in general — seems unharmed.”