Dollar Falters, Along With Yields on U.S. Treasuries

The U.S. dollar stumbled from four-month highs against a basket of currencies on Monday, in line with a dip in U.S. Treasury yields.

A crisis with the Turkish lira over the weekend remained largely contained in emerging markets.
The dollar index fell about 0.35% to 92.09, following last week’s gain of 0.5%.

Yields had jumped after the Federal Reserve last week said the U.S. economy was on track for strong growth. Investors are now looking ahead to a Treasury auction later this week, which could send yields rising again if demand is anemic, analysts said.

Over the weekend, Turkish President Tayyip Erdogan’s surprise replacement of a hawkish central bank governor with a critic of high interest rates dragged the lira down as much as 15% to 8.485 against the dollar.

“One of the key stories today is that the sell-off in the Turkish lira didn’t have any major ripple effects,” said Axel Merk, portfolio manager at Merk Hard Currency Fund in Palo Alto, California. “We have (Fed Chair) Jerome Powell speaking several times this week, and he’ll continue the story line from last week, which in my view means that Treasury yields will be contained, which is a negative for the dollar.”

Turkey’s surprise decision to replace its hawkish central bank governor supported the dollar’s safe-haven appeal.

The Turkish lira stood at 7.75 per dollar. The lira slumped 10% on Monday, the worst plunge since 2018.

The pound was roughly flat against the dollar as investors focused on broader currency market drivers and the European Union’s threat to impose a ban on vaccine imports to Britain.