Dollar dips with Treasury yields after Bessent pick

3 hours ago

2 minutes read

2024.11.24 19:21

By Wayne Cole

SYDNEY (Reuters) – The dollar surrendered a little of its recent gains on Monday as investors assumed the pick for U.S. Treasury secretary would reassure the bond market and pulled yields lower, shaving some of the dollar’s rate advantage.

Yields on 10-year Treasuries slipped to 4.351%, from 4.412% late Friday, as President-elect Donald Trump’s choice of fund manager Scott Bessent was welcomed by the bond market as an old Wall Street hand and a fiscal conservative.

However, Bessent has also been openly in favour of a strong dollar and has supported tariffs, suggesting any pullback in the currency might be fleeting.

“Bessent has publicly lauded dollar strength following news of Trump’s election win, so I admit to being somewhat perplexed by the suggestion that the weakening in the dollar is because of his appointment,” said Ray Attrill, head of FX research at NAB.

“He is an avowed fiscal hawk, so perhaps that has something to do with it, but seeing is going to be believing in this regard.”

The dollar was likely due some consolidation having risen for eight weeks in a row for only the third time this century and many technical indicators were flashing overbought.

The index was last down 0.5% at 106.950, having hit a two-year peak of 108.090 on Friday. The dollar dipped 0.4% on the Japanese yen to 154.18, and further away from its recent peak of 156.76.

The euro edged up 0.7% to $1.0496 and away from Friday’s two-year trough of $1.0332. Resistance is up at $1.0555 and $1.0610, with support around $1.0195 and the major $1.0000 level.

The single currency had taken a hit on Friday as European manufacturing surveys (PMI) showed broad weakness, while the U.S. surveys surprised on the high side.

The contrast saw European bond yields fall sharply, widening the gap with Treasury yields to the benefit of the dollar. Markets also priced in more aggressive easing from the European Central Bank, with the probability of a half-point rate cut in December rising to 59%.

At the same time, futures scaled back the chance of a quarter-point rate cut from the Federal Reserve in December to 52%, compared to 72% a month ago.

Markets now imply 154 basis points of ECB easing by the end of next year, compared to just 65 basis points from the Fed.

Data on UK retail sales also disappointed, leading the market to price in more chance of a rate cut from the Bank of England, albeit in February rather than December.

That saw the pound touch a six-week low on Friday at $1.2484. Early Monday, sterling had bounced 0.4% to $1.2591, but remained well short of last week’s top of $1.2714.