By Wayne Cole and Medha Singh
(Reuters) -The dollar retreated from a two-year high on Monday, following a sharp decline in U.S. Treasury yields, amid confidence that Donald Trump’s pick for the next U.S. Treasury secretary will bring greater fiscal discipline will improve than investors had feared.
The euro rose 0.85% to $1.0506, recovering from a fall on Friday to its lowest price against the dollar since November 30, 2022. Against the Japanese yen, the dollar weakened 0.58% to 153.85 yen.
Ten-year Treasury yields fell more than 11 basis points to below 4.3% after President Trump’s choice of fund manager Scott Bessent, announced late Friday, was welcomed by the bond market as an old Wall Street hand and fiscal conservative . The two-year interest rate also fell.
However, Bessent has also openly favored a strong dollar and supported rates, suggesting any pullback in the currency could be temporary.
“I think it’s an overreaction. We still don’t know how much power there will be in the White House and how much power will be given to the Cabinet,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. New York.
“I don’t think we know much that we didn’t know on Friday. I think it says more about the market positioning than it does about the policies of the new administration,” Chandler added.
The dollar against a basket of six rival currencies including the yen and euro fell 0.16% to 106.76, more than 1% lower than a two-year high of 108.09 on Friday.
Trading was thin ahead of the US Thanksgiving holiday on Thursday and Friday, which is also the start of many in the market. The only significant numbers this week are from Wednesday, with the second reading of third-quarter US GDP and the October personal expenditure price index.
The dollar has risen for eight straight weeks, with many technical indicators pointing to overbought on bets that Trump’s policies would stoke inflation and further support the dollar.
“The prices of several US assets were pushed quite aggressively in one direction for three weeks,” said Geoff Yu, senior macro strategist at BNY. “The markets probably need to take a breather when it comes to their dollar positions.”
RATE OUTLOOK MISCELLANEOUS
The eurozone’s single currency took a hit on Friday as European manufacturing surveys (PMI) were broadly weak, while US surveys surprised on the high side.
The contrast caused European government bond yields to fall sharply, widening the gap with government bond yields to the benefit of the dollar. Markets had also priced in more aggressive easing by the European Central Bank, with the odds of a half-point rate cut in December rising to around 40%.
At the same time, futures have cut the odds of a Federal Reserve rate cut in December by a quarter point to 51%, down from 75% a month ago, according to CME Group’s (NASDAQ:) Fed Watch Tool.
Markets now imply that the ECB will ease by around 150 basis points by the end of next year, compared to around 70 basis points from the Fed.
The minutes of the Fed’s latest meeting will be released on Tuesday and will provide more clues about the US central bank’s thinking behind policy moves so far.
US and EU inflation data will also be released this week, which will further refine the outlook for interest rates.
Sterling strengthened 0.44% to $1.2586 after hitting a six-week low of $1.2484 on Friday.
In the crypto space, bitcoin traded at $96,493.00, consolidating last week’s run-up to a record high of $99,830 after posting gains that surpassed the token $100,000 mark.
has risen more than 40% since the US elections earlier this month, thanks to expectations that Trump will ease the regulatory environment for cryptocurrencies.
