Dollar pares losses as reflation trade sends yields higher

Dollar pares losses as reflation trade sends yields higher © Reuters. A U.S. Dollar banknote

By Julien Ponthus

LONDON (Reuters) – The U.S. dollar pared losses in early European trading after hitting multi-year lows against sterling and the Australian and New Zealand currencies as vaccine progress, expectations for faster economic growth and inflation sent bond yields higher.

Yields on 10-year U.S. and German government bonds hit one-year and eight-month highs respectively as traders continued to play reflation trades.

The British pound was holding the $ 1.40 line after reaching 1.4043, its highest since April 2018, as Prime Minister Boris Johnson charts a path out of lockdowns on the back of rapid vaccinations.

The rose as much as 0.5% to an almost three-year high of $ 0.7908 before letting the dollar come back to 0.7864.

The hit $ 0.7338, also its best since early 2018, helped by S&P’s upgrade of New Zealand’s sovereign credit ratings by a notch, but also saw the greenback gradually pare most losses.

The yen lost 0.33% at 105.78 while the euro lost 0.2% at $ 1.2095 ahead of a German sentiment survey and a speech at 1345 GMT by European Central Bank President Christine Lagarde.

Commerzbank (DE:) analyst Ulrich Leuchtmann argued that much at stake for the relationship between the euro and the dollar lies in the growth differential between the two economies.

“Where EUR-USD is going to go medium-term depends on whether the U.S. economy really will be able to achieve a stronger post-lockdown boom than Europe”, he said, adding he expects the common currency to suffer in that regard in the first half of 2021.

All in all, the was up 0.28% at 90.543.

In the cryptocurrency market, bitcoin eased from the record high of $ 58,354.14 hit during the weekend, retreating to $ 56,039.

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