The dollar plumbed a six-year trough against the Canadian dollar and teetered near multi-month lows versus European currencies on Tuesday, as Treasury yields stalled amid renewed expectations the United States will not hike interest rates anytime soon.
Dallas Federal Reserve President Robert Kaplan on Monday reiterated his view that he does not expect interest rates to rise until next year, fuelling a further decline in bets that inflationary pressure could force the Fed to act sooner.
This week a host of Fed policymakers are scheduled to speak, and the U.S. central bank will also release minutes from its most recent meeting, which may give indications about where monetary policy is headed this year.
However, the growing consensus is that the Fed will tolerate what it sees as a temporary acceleration in inflation, which will keep the dollar lower against most major currencies.
“The most important point is where are yields headed,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities. “Yields are capped, reflecting expectations that U.S. monetary policy will remain easy,” Ishikawa added.
“This places the dollar under downward pressure.”
The benchmark 10-year U.S. Treasury yield stood at 1.6454%, extending a pullback from a five-week high reached last week.