Dollar holds most of its gains after Wall Street rally pushes yields higher

SINGAPORE - 27 December 2018: The dollar retained most of its overnight gains on Thursday but was off its peak for the week so far amid thin volumes, as signs of easing trade tensions and strong U.S. economic data sent Wall Street stocks and Treasury yields higher.

In a sharp bounce from bear market territory, the Dow Jones Industrial Average rocketed more than 1,000 points for the first time on Wednesday, while U.S. 10-year yields rallied around 8 basis points to end at 2.8 percent.

The swing higher in bond yields supported the greenback, which has been under pressure over the past couple of weeks following a decline in yields, which was driven by heightened concerns about slowing economic growth, and - more recently - a partial U.S. government shutdown.

Investors on Wednesday were quick to latch on to media reports that a U.S. trade team will travel to Beijing the week of Jan. 7 to hold talks with Chinese officials.

Markets also lapped up data showing U.S. 2018 holiday sales rose 5.1 percent from a year ago to over $850 billion, the strongest gain in six years.

“Investors are coming back to the U.S. markets after a build-up of lot of fearmongering..this would be supportive of the dollar as well as treasury yields and stocks,” said Stephen Innes, head of Asian trading at Oanda.

“Trade war risk is abating somewhat..so risk-on sentiment should also be supportive of emerging market currencies,” added Innes.

The dollar index, a gauge of its value versus six major peers, slipped 0.2 percent in Asian trade, after gaining 0.5 percent on Wednesday.

The U.S. currency lost about 0.3 percent versus the yen, fetching 111 at 0253 GMT after bouncing 1 percent overnight and breaking a safe-haven driven 8-day stretch of gains for the Japanese currency.

“If risk sentiment keeps improving and Dow futures extend their gains in the Asia session, I would expect dollar/yen to move higher still,” Innes said, though he warned that it was too early call a turn in risk sentiment.

Another factor lifting market sentiment was easing tensions between the White House and the U.S. central bank. White House economic adviser Kevin Hassett said that Fed Chairman Jerome Powell’s job was “100 percent” safe.

Last week, the Federal Reserve raised rates for the fourth time this year, and largely kept to its plans to hike rates next year despite heightened economic risks which prompted U.S. President Donald Trump to step up his criticism of Fed Chairman Jerome Powell.

Trump blasted the Fed on Monday, describing it as the “only problem” for the U.S. economy and stoked speculation he might fire Mr. Powell, whom he picked for the top Fed job last year.

The euro fetched $1.1375, strengthening around 0.25 percent. The single currency is set to end the year lower by 5 percent as weak economic fundamentals in Europe, political tensions in France and Italy and a dovish European Central Bank had made investors favour the dollar over the euro in 2018.

Sterling, which has been battered by Brexit woes in recent months, was firmer at $1.2659, having lost 0.4 percent the previous session.

The Australian dollar, often considered a gauge of global risk appetite, was steady at $0.7056, but off its intra-day high.