The dollar extended its decline into a fifth day, while the S&P 500 was set to edge within a mere fraction of its all-time high after upbeat quarterly earnings for stalwart retailers.
The US currency fell 0.3 per cent to a two-year low against a basket of half a dozen peers on Tuesday. Japan’s yen strengthened to ¥105.53 a dollar, while the euro and pound also gained.
“Recent price action is increasing the risk that the US dollar weakness could extend further in the near-term,” said Lee Hardman, currency analyst at MUFG.
S&P 500 futures were up 0.2 per cent on Tuesday, suggesting the index would rise at market open, after quarterly earnings from Home Depot and Walmart outran analysts’ expectations. The US benchmark index rose on Monday to close 0.3 per cent below its record intraday peak.
A drop in Treasury yields, which signifies a rise in price, lowered the appeal of the dollar. The yield on 10-year Treasury notes fell 0.008 percentage points to 0.6736 per cent in its third daily move lower following a sell-off in early August that pushed it above 0.7 per cent.
George Lagarias, chief economist at Mazars Wealth Management, said the dollar’s recent fall — down more than 4 per cent since mid-July — was due to a “confluence of factors”. Those included deglobalisation, hints that the Federal Reserve may deploy yield curve control, and a stronger euro after European leaders agreed on an EU recovery fund, he said.
Dollar weakness has helped revive a rally in gold prices, adding 1.1 per cent to break above $2,000 a troy ounce. Joost van Leenders, senior investment manager at Kempen Capital Management, said investors were seeking out the precious metal as “more of an inflation hedge than there being a strong drive to safe haven assets”.
The yen was soaking up demand for haven assets, driven by geopolitical risks from US-China tensions to protests in Belarus, said currency analysts at ING.
Increasing worries about the pace of the US economic recovery from the coronavirus crisis added to the pressure on the dollar. The latest trigger was a manufacturing survey on Monday showing that activity in New York state eased in August, having picked up significantly last month for the first time since the pandemic began.
Stalling negotiations on the next round of fiscal stimulus in the US have heightened uncertainty about the speed of recovery.
A Bank of America survey on Monday said bearish sentiment towards the dollar has reached a record level. Meanwhile, positive bets on the euro have hit an all-time high, separate data showed, prompting caution on whether the euro’s rally and dollar’s slide could lose momentum.
The rally in US stocks has been largely driven by tech shares, prompting concerns among some investors that these stocks are vulnerable to a crash reminiscent of the early 2000s dotcom bust.
“Fortunately, [valuations are] not at similar nosebleed levels, which prevents the market meltdown scenario of 2000-02,” said Tobias Levkovich, chief US equity strategist at Citi. “But we still worry that investors have crowded into one area that might be ripe for some pitfalls.”
Stocks in Europe slowly picked up on Tuesday, as the continent comes to terms with a new round of government-imposed travel restrictions. Europe’s region-wide Stoxx 600 rose 0.4 per cent, while Milan’s FTSE MIB was up 1 per cent and London’s FTSE 100 budged up 0.4 per cent.
In Asia-Pacific, Australia’s S&P/ASX 200 rose 0.8 per cent. China’s CSI 300 index of Shanghai and Shenzhen-listed stocks fell 0.1 per cent and Hong Kong’s Hang Seng gained 0.1 per cent.
Shares in regional companies that make computer chips were hit hard after the US commerce department announced on Monday that groups would have to obtain a licence to sell Huawei any chip that has been made using US equipment or software. Taiwan’s MediaTek fell 9.9 per cent.
