Dollar weakens in Asia as U.S bond yields fall

The dollar weakened in Asia as the United States Treasury yields fell to three-month lows, with investors fretting over a possible pause in the Federal Reserve’s rate-hike cycle and portents of recession seen in a yield curve inversion.

The US 10-year Treasury yield fell to 2.94 percent on Tuesday, its lowest level since mid-September. The difference in yield between the US 2-year and 10-year tightened to its smallest since July 2007.

Falling US yields are a negative for the dollar, especially versus the major currencies, said Rodrigo Catril, senior currency strategist at National Australia Bank.

The curve between three-year and five-year notes inverted for the first time since 2007 on Monday and was last at minus 1.2 basis points.

The two-year and 10-year yield curve is a key focus for investors as an inversion is seen as a predictor of possible recession. A yield curve is said to be inverted when yields on longer-dated maturity bonds are lower than shorter-dated bonds.

The yield curve has flattened as continuing interest rate hikes send short-dated yields higher, while longer-dated Treasury yields are kept down by tepid inflation and slowing global growth.

Catril added that US Treasury yields are near crucial technical support levels, a break of which could add further pressure on US treasury yields and the dollar.

The dollar index, a gauge of its value versus six major peers, was off 0.23 percent at 96.8.

The weakness in the dollar comes against the backdrop of a temporary truce in the China-US trade conflict, which has bolstered investor confidence in riskier currencies.

The dollar had been supported for most of 2018 by a robust US economy and a relatively hawkish Fed.

Markets have priced in an 87 percent probability of a rate hike after the Fed’s December 18-19 meeting.

It would be recalled that the dollar came under pressure last week when the market took comments from the Fed as signaling a slower pace of rate hikes.

Source: Voice of Nigeria