Dollar edges lower as recent rally runs out of steam

Dollar edges lower as recent rally runs out of steam

The 10-year USA yield touched its highest since March but tightened to near flat on the day after a Treasury auction was well bid.

European stocks fell early in the session, with an increase in coronavirus cases across the continent and China pushing down commodity stocks.

"Friday's payroll report (in the US) was disappointing, underscoring the need for a more meaningful fiscal response. But as we head into week two (of the new year), I think some of that optimism has been tempered a little bit with profit-taking". Mainland Chinese shares gained 2.2% overnight to close at their highest in over five years.

Spot gold rose 0.2 per cent at US$1,847.96 per ounce by 2.35am GMT, after touching its lowest since Dec 2 in the previous session.

Last week, Wall Street bankers warned of toppy stock markets and a looming retreat after exuberance from unprecedented economic stimulus had led to "frothy" asset prices.

"I think there is a perception that the markets may be slightly ahead of themselves", Hewson said.

Asian shares paused near historic highs on Monday while Treasury yields were at a 10-month top as "trillions" in new USA fiscal stimulus plans were set to be unveiled this week, stoking a global reflation trade. Vice Chair Richard Clarida said there would be no change soon to the $120 billion of debt the Fed is buying each month.

Expectations for a wave of spending under an incoming Joe Biden administration have pushed Treasury yields higher, with the 10-year yield reaching a 10-month high on Tuesday.

The dollar index slipped 0.3% against its rivals, while 10-year USA treasury yields fell to a session low of 1.146% after a strong 10-year auction.

Mark Cabana, of BofA, has warned that the stimulus could put pressure on the dollar and cause the Fed to fall later this year.

"An early Fed taper creates upside risks to our year-end 1.5 per cent 10-year Treasury target and supports our longer-term expectations for neutral rates moving towards 3 per cent", he said in a note to clients.

The poor payrolls report will heighten interest in USA data on inflation, retail sales and consumer sentiment.

Profits will also be the focus as JP Morgan, Citigroup and Wells Fargo are among the first companies to release fourth quarter results on January 15.

Gold eased on Tuesday in choppy trading that earlier saw it climb as much as 1% as a surge in U.S. Treasury yields outweighed support from bets on higher inflation as Washington rolls out more stimulus.

Brent was at $56.56, up 1.62% on the day, while USA crude recently rose 1.76% to $53.17 per barrel.

The Japanese yen strengthened 0.49% versus the greenback at 103.75 per dollar, while the British pound was last trading at $1.3665, up 1.12% on the day as comments from the Bank of England's governor on the viability of negative interest rates dampened bets for subzero rates in Britain.

Gold, which pays no interest, rose 0.1% to $ 1,850 an ounce after slipping as low as $ 1,816.

Brent crude futures dipped 65 cents to $55.34, while U.S. crude futures lost 41 cents to $51.83 a barrel.