Dollar Drops to Weekly Low as Dip in Treasury Yields Adds Weight

  • Euro-dollar stalled near 1.0500; options may create resistance
  • Month and year-end rebalancing flows further muddle markets

The dollar dropped to its lowest of the week and remained defensive as U.S. Treasury yields fell to fresh lows after another well-received auction saw $28 billion of 7-year notes snapped up at a yield of 2.284%, while month-end portfolio rebalancing also weighed, though foreign exchange flows remained modest and participation light overall.

The dollar was also pressured Wednesday when Treasury yields fell after an auction of 5-year notes was equally well-received by investors. Yields fell along the curve today as markets got jostled by year-end trading flows; the yield on the U.S. 10-year briefly fell below 2.46%, the lowest since Dec. 14. The greenback relinquished weekly gains that had seen it peak near its Dec. 20 high, the highest level since 2002, as measured by the DXY Dollar Index.

  • Some FX flows may have moved up to today amid investor concerns about poor liquidity on the last day of the month due to abbreviated trading sessions in some European markets, traders said; the USD set a new low for the week just after today’s 4pm London fixing, when rebalancing had been expected to materialize
  • The dollar remains lower vs all of its G-10 peers, led by losses vs SEK and JPY, and is also lower vs a majority of emerging market FX as the lower yields curb the USD’s allure vs some higher-yielding currencies
  • EUR/USD remains close to a fresh weekly high of 1.0492 set around the London fixing where price action suggested a few stops may have been tripped as EUR rose above the prior high this week at 1.0480; EUR stalled ahead of 1.0500 where large option expiries roll-off tomorrow; other large expiries are at 1.0450
  • USD/JPY trading at ~116.60 after a modest rebound off the overnight low stalled ~116.90; the pair fell sharply overnight amid thin conditions and stop-loss selling as Treasury yields dropped; bids are likely to materialize below 116.00, a trader in London said
  • U.S. data released early in the day showed weekly jobless claims at 265k, matching estimates; the November advanced trade goods deficit widened to $65.3b vs est. $61.6b while wholesale inventories rose 0.9% vs est. 0.2%
  • There was little USD impact from a report that China plans to lower the weighting of the dollar in the basket used to determine the value of the yuan, though some clients were intrigued by the announcement, a trader in London said
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