Dollar Treads Water as Long Term U.S. Yields Fall

The dollar continuously strive to stay afloat against its peers on Wednesday. It has been limited due to the U.S. Treasury yields failing to rise despite the increase in investor risk appetite in broader financial markets.

The dollar index, which is something that measures the greenback against a basket of six international major currencies, had little change at 93.941.

This is considered a setback compared to its one week high of 94.165, which fell overnight after a rally caused by a slumping euro earlier this week stopped in line with the continuous fall of the long term U.S. Treasury yields.

The greenback slipped overnight from 112.705 yen to a tad lower 112.280 yen.

“The dollar should be getting more of a lift against the yen in this 'risk on' environment,” said senior currency strategist Yukio Ishizuki. “But what is taking precedence is the adjustment of positions before the Thanksgiving and year-end holidays by participants, resulting in the covering of yen shorts.”

Japan’s Nikkei recorded a rise back towards its 26-year peaks.

Ishizuki also pointed out that the continuous flattening of the treasury yield curves, aside from limiting long-term yields, is a further drag on the dollar.

Another factor said to be helping the Japanese yen on a broader level was its recent gains against the euro.

Euro fell against its peers as German Chancellor Angela Merkel failed to form a three-way “Jamaica coalition” government at the start of the week. This failure resulted to blurring the country’s political outlook.

“Cross yen pairs recently enjoyed a good run higher. Of these pairs, euro/yen holds a dominant position,” an analyst stated. “Selling of the euro against the yen gathered momentum as traditional profit-taking before Thanksgiving was joined by market participants dissolving euro longs on the German political news.”

The euro was last listed 0.2 percent lower at 131.790 yen. It fell to as low as 131.160 on Monday, which is its lowest since the middle of September.

On Wednesday, the People’s Bank of China (PBOC) set the Yuan parity rate against the dollar at 6.6290, compared to previous close of 6.6305.

The China Foreign Exchange Trade System is the one responsible for setting the weighted average of prices given by market makers, not including the highest and lowest offers from the calculation.

The central bank only allows up to 2 percent movement above or below the central parity rate when it comes to the dollar/Yuan rate.

One key touchstone for sentiment in the near term is predicted to be a Yuan level of 7 against the dollar, USD/CNY, according to market watchers.

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