The dollar gave up some of its recent gains on Monday as the nomination for U.S. Treasury secretary appeared to ease concerns in the bond market, leading to a dip in yields and slightly reducing the currency’s rate advantage.
Yields on 10-year Treasuries fell to 4.351% from 4.412% on Friday, as President-elect Donald Trump’s selection of fund manager Scott Bessent was positively received by the bond market. Bessent, known as a Wall Street veteran and fiscal conservative, reassured investors.
Despite this, Bessent has been a vocal advocate for a strong dollar and has supported tariffs, indicating that the currency’s pullback might be temporary.
“Bessent has consistently praised dollar strength since Trump’s election victory, so I’m somewhat puzzled by claims that his appointment is behind the dollar’s decline,” said Ray Attrill, head of FX research at NAB. “As a staunch fiscal hawk, that could be a factor, but we’ll have to wait and see.”
The dollar appeared due for a pause after climbing for eight straight weeks, marking only the third such streak this century. Technical indicators had signaled overbought conditions.
The dollar index dropped 0.5% to 106.950 after reaching a two-year high of 108.090 on Friday. The greenback slid 0.4% against the Japanese yen to 154.11, retreating further from its recent peak of 156.76.
Meanwhile, the euro gained 0.5% to $1.0478, recovering from Friday’s two-year low of $1.0332. Resistance levels are noted at $1.0555 and $1.0610, with support around $1.0195 and the critical $1.0000 mark. Diverging Rate Outlooks
The euro faced pressure on Friday after European manufacturing PMI data revealed widespread weakness, contrasting with unexpectedly strong U.S. surveys.
This disparity drove European bond yields lower, widening the gap with U.S. Treasury yields and boosting the dollar. Markets also increased bets on aggressive easing by the European Central Bank (ECB), with the likelihood of a 50-basis-point rate cut in December rising to 59%.
Conversely, expectations for a 25-basis-point rate cut by the Federal Reserve in December declined to 52%, down from 72% a month earlier.
Market projections now suggest 154 basis points of ECB easing by the end of next year, compared to just 65 basis points of cuts anticipated from the Fed.
The Federal Reserve’s meeting minutes, scheduled for release on Tuesday, are expected to provide insight into the decision to cut rates by 50 basis points and the outlook for further easing.
Additionally, U.S. and EU inflation data due this week will help refine rate expectations.
In the UK, disappointing retail sales data prompted markets to increase the odds of a Bank of England rate cut, though it is now expected in February rather than December. Sterling hit a six-week low of $1.2484 on Friday but recovered 0.4% to $1.2591 early Monday, still below last week’s high of $1.2714.
Meanwhile, Bitcoin retreated to $97,567 from last week’s record high of $99,830, as profit-taking emerged near the symbolic $100,000 mark. Despite this, the cryptocurrency remains up more than 40% since the U.S. election, fueled by expectations that a Trump administration will ease cryptocurrency regulations.
