Dollar Slumps on Lower Yields, Euro dogged by Political Concerns

On Monday, a slide in U.S. bond yields pressured the greenback against the yen, while the euro fight for traction after suffering important losses at the end of the previous week on renewed concerns regarding the upcoming French elections.



On Monday, a slide in U.S. bond yields  pressured the greenback  against the yen, while the euro fight for traction after suffering important losses at the end of the previous  week on renewed concerns regarding  the upcoming French elections.

Markets, already worried over the probability of a win for far-right, anti-European Union candidate Marine Le Pen, were shaken after two French hard-left candidates late on Friday stated  they were discussing cooperation in their bid for the country’s presidency.

The anxiety in markets is that a unified left-wing front cause the centrist vote to move toward Le Pen.

The current spike in European political risks pushed down the greenback  against the yen by pushing down Treasury yields to one week lows of 2.4%, 12:32AM ET.

The greenback slightly changed at 113.090 yen, not far from 112.620, its lowest since Feb. 9 touched on Friday.

The dollar index against a basket of currencies was steady at 100.930 (DXY). Earlier this month, the index had increased for 10 straight days before losing momentum in spite of a string of solid U.S. data, to the frustration of dollar bulls.

“It is hard for dollar/yen to move higher when the 10-year Treasury yield, which initially rose to as high as 2.6 percent, is not stuck around 2.4 percent,” said Koji Fukaya, president of FPG Securities in Tokyo.

The Treasury 10-year yield (US10YT=RR) increased above 2.6% in December to a two-year peak when potentials were at their peak that Donald Trump would embark on large fiscal stimulus and reflationary policies once he became president.

“There is also the possibility of the next U.S. rate hike being pushed back to May instead of March. The Fed might not be inclined to hike rates, and thus induce a rise in yields, just on the Trump administration’s deregulation moves and tax cuts,” Fukaya said.

Expectations of developments in fiscal stimulus plans under Trump have not happened yet, cancelling out some of the recent dollar-supportive factors.

On Thursday, a combative presidential news conference increased doubts over how effective the Trump administration will be in pushing through its economic agenda.

The euro crawled up 0.1% to 1.0613 after declining 0.6% on Friday. The common currency pushed up 0.2% to 120.010 yen (EURJPY=) after plumbing an 11-day low of 119.650. It had glided approximately 1% on Friday against the yen.

“The latest round of risk aversion that supported the yen is likely to be a sporadic one, as equities are still well supported globally. It is not the typical ‘risk off’ that engulfs the broader financial markets and leads to the safe-haven buying of the yen,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

Somewhere else, the pound was flat at $1.2414 after declining 0.7% on Friday, after a surprise 3rd monthly dropped in British retail sales pointed to lessening consumer sentiment.

The Australian dollar plunged 0.1% to $0.7670 but still in touch of a 3-1/2 month peak of $0.7732 scaled the previous week.

This year, the Aussie has enjoyed steady support from an increased in the price of iron ore, the country’s chief export. However, doubt regarding the country’s monetary policy and economic performance has prevented the currency from making additional gains.

The New Zealand dollar declined 0.1% at $0.7177. Concentration was on Wednesday’s global dairy price auction. The kiwi is frequently impacted by the price of milk, New Zealand’s top export product.

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