Dollar is on Course for its Worst Back-to-Back Weekly Drop

The U.S. dollar is on track for its worst back-to-back weekly drop in 2021 in the middle of an extended retreat in Treasury yields as investors increasingly bought into the central bank’s insistence of keeping an accommodative policy stance for a while longer.

The benchmark 10-year Treasury yield fell to a one-month low of 1.528% overnight, further moving away from over a one-year of 1.776% at the end of March.

When it came to the dollar index, it dropped to an almost one-month low of 91.487 overnight. However, it somewhat recovered to 91.752 in the Asian session. It is set for a 0.5% decline for the week, extending the 0.9% drop from the previous week.

The gauge, also known as the DIY, jumped with Treasury yields to an almost five-month high at 93.439 on the last day of March. It reached this result thanks to two main factors. The first one was the potential impact of massive fiscal spending coupled with continued monetary spending and its impact on the U.S. economy. Another factor was the chance of higher inflation due to massive spending.

Nonetheless, bond and foreign-exchange markets now seem willing to give the Fed the benefit of the doubt when it comes to inflation.

The U.S. dollar is still struggling to strengthen its position in April despite the U.S. macro outperformance narrative. The dollar index is trading like it’s topping out now, sooner than expected.

Retail sales rose 9.8% in March, surpassing economists’ expectations for a 5.9% rise. Meanwhile, first-time claims for unemployment benefits dropped last week to the lowest level in more than a year.

Dollar, yen, euro, and yuan

The U.S. dollar traded at 108.825 yen. The greenback is on course for a 0.8% loss for the current week, following a 0.9% decline the previous week.

Another important currency which is the euro changed hands at $1.19585. The euro is on track for a 0.5% weekly advance, adding to the previous period’s 1.3% surge.

Some analysts also pointed to Wall Street’s strong results, with the S&P 500 and Dow both posting record highs. This factor affects the dollar amid increased risk appetite.

Highly anticipated economic data from China had little impact on currencies, despite a great result. The country’s economy posted a record 18.3% growth in the first quarter year-on-year. The Chinese yuan fell 0.1% to 6.5326 per dollar in the offshore market.