Dollar index is on track for its biggest annual decline since 2003.
The U.S. dollar fell Thursday, extending its recent losses and taking a particularly hard hit against the British pound, euro and Aussie dollar after a sharp fall in U.S. Treasury yields.
Trading was thin as many investors were expected to stay away until after the New Year holiday, in what has been a shortened week of trade for many major markets.
Where are currencies trading?
The ICE U.S. Dollar Index DXY, +0.19% , a measure of the dollar against a basket of six major rivals, was down 0.4% to 92.621. If the index were to end the day at that level, that would represent its lowest level since September. The WSJ Dollar Index BUXX, +0.01% which gauges the buck against 16 rivals, was down 0.4% at 86.24.
Both indexes have been down in seven of the past eight sessions. The ICE Dollar index is down 9.3% thus far this year, on track for its worst annual performance since 2003.
The euro EURUSD, -0.3397% rose to $1.1944 from $1.1896 late Wednesday in New York, putting it near levels not seen since late November. The common currency has gained 13.5% in 2017.
The British pound GBPUSD, -0.0076% jumped to $1.3442, compared with $1.3400 Wednesday. The pound is up 8.9% over the course of the year.
Against the Japanese yen USDJPY, -0.20% , the dollar fell to ¥112.87 from ¥113.25 in the prior session. The dollar has lost 3.4% against the yen.
As for the Mexico-U.S. pair USDMXN, -0.0063% one dollar bought 19.74 pesos compared with 19.7019 on Wednesday, while Canada’s dollar USDCAD, -0.1217% strengthened against the greenback, with the dollar changing hands at C$1.2571 versus C$1.2644 on Wednesday.
What drove the market?
Falling U.S. bond yields were cited as one reason for dollar weakness on Thursday. Falling yields are generally bearish for the home currency and on Wednesday, the yield for the benchmark 10-year Treasury note TMUBMUSD10Y, -2.49% saw its biggest one-day drop in more than three months.
That marked a reversal from last week when investors shed bonds on fears the rapid passage of the Republican tax bill could trigger a sudden rise in inflation and force the Federal Reserve into more aggressive rate increases in 2018. That scenario would be bearish for bonds and bullish for the dollar. But analysts now believe that selloff was overdone and have been piling back into bonds.
Expectations for higher interest rates from the Federal Reserve have failed to give the dollar a lift, and the ICE U.S. Dollar Index is down 9.3% with a few days left to go in 2017.
The euro, up 13% against the dollar year-to-date, could move even higher against the greenback as the European Central Bank is expected to take its foot off the pedal of quantitative easing in 2018. Higher interest rates in Europe could drive investors back to the euro as they seek yield.
What are strategists saying?
“There’s a feeling of negativity going into 2018. Central banks are tightening, which could strengthen other currencies against the dollar, and while tax reform may give a bump to the economy, it doesn’t seem like the bump would be significant enough for the dollar to appreciate,” said Juan Perez, senior foreign exchange trader and strategist at Tempus Inc.
Hussein Sayed, chief market strategist at FXTM, blamed the dollar’s weakness on the move in Treasurys in a note to clients. “I think the best explanation for the dollar weakness is the sharp fall in U.S. Treasury yields,” he wrote. “10-year bond yields dropped 7 basis points on Wednesday, to reverse almost 50% of the gains from mid-December toward last week, where yields broke above 2.5% for the first time since March 2017.”
What’s the latest economic data showing?
Jobless claims were flat at 245,000 in the latest week, a historically low level. Separately, the U.S. deficit in goods increased by 2.3% in November. The Chicago Purchasing Managers Index rose to 67.6 in December, up from its previous reading of 63.9.