NEW YORK (Reuters) – The US dollar stumbled from four-month highs against a basket of currencies on Monday, in line with lower US Treasury yields.
A crisis in the Turkish lira over the weekend remained largely contained in emerging markets.
The dollar index fell about 0.35% to 92.09, following last week’s 0.5% gain.
The yield on US Treasuries fell from its 14-month highs on Monday and was at 1.682% for the last time, but remained near one-year highs as investors bet on an economic recovery.
Yields surged after the Federal Reserve last week said the US economy was on track for strong growth. Investors are now eyeing a Treasury auction later this week, which could push yields up again if demand is weak, analysts said.
Over the weekend, Turkish President Tayyip Erdogan’s surprise replacement of a hawkish central bank governor with a critic of high interest rates caused the pound to fall 15% to 8.485 against the dollar.
“One of the key stories today is that the massive sell-off of the Turkish Lira did not have major spillover effects,” said Axel Merk, portfolio manager at Merk Hard Currency Fund in Palo Alto, in California. “We have (Fed Chairman) Jerome Powell speaking several times this week, and he will continue with last week’s scenario, which I think means Treasury yields will be contained, which is negative for the dollar. ”
Turkey’s surprise decision to replace its hawkish central bank governor has bolstered the dollar’s safe haven appeal.
Even with the greenback falling on Monday, markets have been slow to grasp the theme of the dollar’s rise in recent weeks, as investors bet that a global economic recovery would encourage buying riskier currencies.
The Turkish lira stood at 7.75 per dollar. The pound fell 10% on Monday, the worst drop since 2018.
The pound was roughly stable against the dollar as investors focused on broader drivers of the currency market and the European Union’s threat to impose a ban on vaccine imports into Britain. (Chart: currency positions, https://fingfx.thomsonreuters.com/gfx/mkt/qmypmrjwnvr/FX%20positions.JPG)
(Reporting by Jessica DiNapoli and Saikat Chatterjee; Editing by Alexander Smith, Dan Grebler and Jonathan Oatis)