Tokyo: The dollar headed for its biggest decline against the yen in almost four weeks as a retreat in Treasury yields sapped demand for the US currency.
The greenback slid after capping its biggest three-week rally versus its Japanese peer since 1995, as a technical indicator called the relative strength index signalled it had risen too fast. Treasury yields declined, with futures indicating that traders see a 100 per cent chance the Federal Reserve will raise interest rates next month.
The benchmark 10-year note yield had surged amid speculation President-elect Donald Trump will pursue reflationary policies. Similar-maturity German Bund yields fell for a third day.
“Dollar-yen looks to be struggling as the 10-year Treasury note opens for the week with a further step lower in yield,” said Sean Callow, senior strategist at Westpac Banking Corp in Sydney. “Any signs that Treasuries’ Trump tantrum is waning will hurt yield-sensitive dollar-yen.”
The dollar dropped 0.8 per cent to 112.32 yen as of 6.47am in New York, after reaching an eight-month high of 113.90 on Friday. The pair’s 14-day RSI was about 75, after jumping to 85 last week, its highest point in more than two years. Readings above 70 indicate to some traders that an asset, in this case the dollar, has been pushed too far and may retreat.
“You can only sell or buy something for the same reason for so long,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London. “You can’t keep buying the dollar because of reflation-Trump when he isn’t even in the White House yet. There’s certainly profit-taking because the dollar has been massively strong, not just since the US election, but realistically it’s been in an uptrend for a month or so before.”