Dollar Set to Post Biggest Weekly Loss in Two Years

The U.S. Dollar settled near a three-year low against a basket of currencies on Thursday despite a sharp rise in U.S. Treasury yields. The March U.S. Dollar Index futures contract is now in a position to close more than 2 percent lower, its biggest weekly loss in two years.

The pressure on the Greenback was fueled by a number of factors including concerns that the Trump Administration might pursue a weak dollar strategy in an effort to drive up demand for U.S. goods and services. Traders also said that global monetary policy tightening is eroding the U.S. of its yield advantage.

Additionally, investors are also worried that the expansion of the deficit in the United States is eroding confidence in the Greenback. According to the latest projections, the U.S. deficit is expected to jump to near $1 trillion in 2019 amid a government spending splurge and large corporate tax cuts.

Forex

The Dollar/Yen fell to its lowest level in 15 months, on track for a weekly loss of 2.9 percent. The Forex pair was under pressure despite increased demand for higher-risk assets.

The dollar also failed to gain momentum against the Japanese Yen after data released this week showed U.S. consumer inflation and U.S. producer inflation was stronger than expected  in January, sending Treasury yields to four-year highs, as investors bet the Federal Reserve could increase interest rates as many as four times this year.

In other news, the reappointment of Haruhiko Kuroda as Bank of Japan governor and the nomination of BOJ executive director Masayoshi Amamiya and Waseda University professor Masazumi Wakatabe as deputy governors had little impact on the Yen, although the proposed leadership trio were seen certain to keep the central bank on an ultra-loose policy path.

Gold

Gold futures finished slightly lower on Thursday, but still remained in a position to post its biggest weekly percentage gain in nearly two years. The catalyst behind the rally was a weaker U.S. Dollar and hedge buying against inflation. Traders also said that prices may have received a boost from physical buying ahead of the Chinese New Year.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil settled mixed on Thursday despite a weaker dollar that hovered near a three-year low. Position-squaring ahead of the start of the Chinese New Year may have also been behind the two-sided trade.

Crude oil is set to recover about 4 percent of last week’s 10 percent decline, getting most of its support from a weaker dollar and a rebound in the global equity markets. However, the upside was limited by worries over rising U.S. production.