Watch Treasury auctions this week for international response to tariffs, ING says
The dollar declined on Monday, adding to losses from the prior session that came after the U.S. jobs report dampened expectations of aggressive interest-rate hikes from the Federal Reserve.
Traders were also waiting for two key Treasury auctions this week to gauge foreign appetite for U.S. debt in wake of President Donald Trump decree focused on tariffs on steel and aluminum imports.
What are currencies doing?
The ICE U.S. Dollar Index (IFUS:DX-Y.NYB) fell 0.1% to 89.990, losing ground for a second straight session.
The buck posted one of its biggest losses against the yen (XTUP:USDJPY) , buying ¥106.54 compared with ¥106.81 late Friday in New York.
The euro (XTUP:EURUSD) rose to $1.2334, up from $1.2307 on Friday.
The pound (XTUP:GBPUSD) bought $1.3877, rising from $1.3848 on Friday.
The Australian dollar (XTUP:AUDUSD) rose to $0.7862 from $0.7847 on Friday, boosted by news the country will be exempt from the U.S. tariffs on steel and aluminum imports.
What is driving the market?
The dollar weakness on Monday came as traders continued to digest the U.S. jobs data out on Friday that showed stronger jobs gains than expected, but disappointing wage growth. As pay gains are a key factor for the Fed in setting interest rates, the mixed report were seen as doing little to compel the central bank to raise rates more than three times this year.
After faster-than-expected wage growth in January, traders had started to speculate that the Fed might hike four times in 2018 to keep inflation under control. The Chicago Fed’s Charles Evans said on Friday after the data that it was a strong report, but that he would like to see stronger wage growth.
Dollar investors were also watching the potential fallout from Trump’s tariffs. Analysts at ING said the tariffs “merely corroborate” the administration’s desire for a weaker greenback, potentially prompting foreign buyers to shy away from U.S. Treasurys. Additionally, U.S. trading partners hit by the tariffs could launch a “collective buyers’ strike” on Treasurys as a way of “subduing the enemy via a more indirect form of attack.”
Lower demand for U.S. debt could lead to weaker demand for the dollar and further weaken the currency. There are two important Treasury auctions this week that will test foreign investor appetite, according to ING: A 10-year (XTUP:TMUBMUSD10Y) auction on Monday and a 30-year (XTUP:TMUBMUSD30Y) auction on Tuesday.
What are strategists saying?
“The prospect of a global trade war may just well have lit a fuse under this [lower dollar demand] — with major trading partners potentially rotating out U.S. debt holdings at a quicker pace (or at least using the threat of this as a negotiating tool). Watch the U.S. Treasury auction space this week — with the dollar trading soft given the Trump policy uncertainty,” analysts at ING said in a note.
Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.
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