NEW YORK (Reuters) – The dollar held just below two-year highs against a basket of currencies on Monday, still supported by higher U.S. Treasury yields, while the euro rallied after French leader Emmanuel Macron beat far-right challenger Marine Le Pen in the first round of presidential voting.
U.S. Treasury yields have soared on expectations of more aggressive tightening by the Federal Reserve, boosting the greenback. Benchmark 10-year note yields reached 2.793% on Monday, the highest since January 2019.
But the euro looked set to snap a seven-day losing streak against the U.S. currency, rising 0.14% to $1.0889. The U.S. dollar index was last at 99.92, after reaching 100.19 on Friday, the highest since May 2020.
“There was maybe a bit of a relief rally, but it’s going to be hard for the euro to really get more upside traction until the event risk fully passes,” said Erik Nelson, a macro strategist at Wells Fargo (NYSE:WFC) in New York.
Macron will face Le Pen in what promises to be a tightly fought French presidential election runoff on April 24.
The dollar gained further against the yen, which reached its weakest level since mid-2015. The Japanese currency has deteriorated as the Bank of Japan (BOJ) has stayed more dovish than increasingly hawkish peers such as the Fed.
“What we’ve heard from the BOJ so far has been very consistent that they’re not concerned about this move (in the yen) and, if anything, they’re comfortable with the move,” said Nelson. “Given the way rates are moving, the attractiveness of selling the yen and earning a positive rate of interest on that trade, that’s going to continue to be a one-way bet for I think quite a while.”
The dollar gained 0.94% to 125.45 yen.
The next major economic focus in the United States will be consumer price data for March due on Tuesday.
Commodity-linked currencies including the Canadian and Australian dollars and Norwegian krone weakened as oil prices slipped.
The dollar gained 0.39% against the loonie to $1.2621 Canadian dollars, and 1.13% against the Norwegian currency to 8.8105 krone. The Aussie slipped 0.40% to $0.7429.
China’s yuan weakened against the dollar on investor concern over capital outflow and currency depreciation pressure after benchmark yield differentials turned negative between the Asian economic powerhouse and the United States.
Yields on China’s 10-year government bonds fell below U.S. Treasury yields for the first time in 12 years as investors prepared for more monetary easing on the mainland and a widening divergence between the U.S. and Chinese economies.
The Russian rouble weakened sharply in jittery trade, reversing some of the previous week’s gains, after the central bank relaxed temporary capital control measures.
In cryptocurrencies, Bitcoin fell to three-week lows, and was last down 3.78% at $40,541. Ether fell 5.26% to $3,034.
