Bearish Dollar Trend Pauses Amid Higher Yields As Jobs Report Looms

TOKYO (Reuters) – The dollar maintained its biggest gain in more than two months against its major peers on Friday, as a rise in U.S. yields sparked some unwinding of bearish bets on the currency.

The greenback rebounded from a nearly three-year low, with traders taking profits against the euro in particular, following the dollar’s index decline of almost 7% in 2020 and 0, 9% the new year in a context of expectations of US fiscal stimulus.

Democrats gained effective control of the Senate this week, giving President-elect Joe Biden the chance to hike spending, which analysts say will be negative for bonds and the dollar.

The benchmark 10-year Treasury yield surpassed 1% on Wednesday for the first time since March.

“There have been aggressive dollar shorts purchases,” said Bart Wakabayashi, Tokyo branch manager of State Street Bank and Trust.

“The sale of treasury bills was a trigger.”

Investors are now waiting for U.S. non-farm payrolls later Friday to see if significantly larger stimulus will be needed to keep the economic recovery alive.

The dollar index was little changed at 89.859 in Asian trade, after falling to an almost three-year low at 89.206 on Wednesday. It rose more than half a percent on Thursday, but remains on track for a weekly decline.

The euro was broadly stable at $ 1.22605 after falling 0.5% on Thursday.

The riskier Australian dollar was also little changed at 77.70 US cents after slipping 0.5% in the previous session.

The greenback bought 103,900 yen after gaining 0.7% to close at 103.830 in New York.

“The US payroll report could be seen as a potential litmus test for the declines in the US dollar,” TD Securities analysts wrote in a client note.

“The positioning is tight and the safeguard of US yields worries some investors. Our call for a negative draw may not be big enough to trigger a short sell-out, but we believe defensive posture is tactically justified nonetheless.

Bitcoin slipped 3.3% to $ 36,198 and fell as low as $ 36,618.36, a day after smashing $ 40,000 for the first time.

The world’s most popular digital currency soared to $ 40,420 on Thursday, less than a month after hitting the $ 20,000 mark on December 16.