Dollar Drops versus Yen as U.S. yields Declines, holds Steady Compared to Euro and Pound

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On Thursday, the greenback dropped against  the yen as U.S. yields decline suddenly to two-week lows, however, the dollar managed to hold steady compared to the euro and pound.

The dollar declined 0.2% at 117.070 yen, having come down from a peak of 117.815 touched overnight.

Treasury yields dropped in the wake of weaker-than-expected pending home sales statistic and a robust debt auction.

The euro slightly adjusted to $1.0420 <eur=>after losing 0.4% the prior day, during which it went as low as $1.0372.

“The dollar looks like it has run its course against the yen for now. But against the euro, the dollar still has room to gain as the pair is now trying to catch up to the widening between U.S. and German yields,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The spread between the 10-year U.S. Treasury (US10YT=RR) and German bund (DE10YT=RR) yields is the widest on record stretching back to 1990.

The spread is increasing lately on the divergence between European and U.S. central bank policy and outlooks for development and inflation.

The common currency already touched a near 14-year low of $1.0352 the previous week and analysts assume it to eventually reach parity with the dollar the approaching  year.

Sterling was flat at $1.2229. The pound was in reach of a two-month decline of $1.2201 set overnight during fresh doubt over Britain’s Brexit negotiations.

The dollar index declined 0.15% at 103.150 (DXY), however, still in reach of a 14-year peak of 103.650 struck the previous week.

The index has moved to that level on expectations that Donald Trump’s incoming administration will increase U.S. development through fiscal stimulus, which could be accompanied by monetary tightening and higher yields.

The Australian dollar increased 0.15% at $0.7188.

On Additional  New

On Wednesday, the  euro was under pressure compared to the broadly stronger U.S. greenback during  thinning pre-New Year holiday trade, with the single currency looking set to test the lows from January 2003.

The euro declined to a session low of 1.0393 against the dollar, not far from the previous week’s 13-year low of 1.0352. The pair was previously at 1.0397 by 8:05AM ET (13:05GMT), down 0.55% on the day.

Due to the holiday period, trading volumes are expected to stay light this week, as many investors already closed book before the year end, decreasing liquidity in the market, which could exaggerate market changes.

The greenback stayed well-supported after previous day’s data indicated U.S. consumer confidence reaching  its highest level over 15 years in December, in addition to robust  housing figures.

The upbeat reports supported  underscore expectations that the Fed Reserve would increase interest rates at a faster pace the approaching  year.

For the first time in a year, the Fed Reserve hiked interest rates earlier this month and expected three more increases in 2017. In contrast, the European Central Bank stays  committed to very loose monetary policies.

Higher rates increased the greenback by making the currency more attractive to yield-seeking investors.

On Wednesday, the National Association of Realtors is to publish data on November pending home sales at 10:00AM ET (15:00GMT). The report  was expected to show pending home sales increased 0.5%  the previous  month, after edging up 0.1% in October.

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