Dollar hammered as Treasury yields sink

Yen, euro and U.S. dollar banknotes of various denominations.
Kiyoshi Ota | Bloomberg | Getty Images

The U.S. dollar fell across the board on Friday, on pace for its worst weekly loss in four years, as a sharp drop in U.S. government bond yields hurt the greenback's appeal.

The dollar index, which measures the greenback's strength against a basket of six other major currencies, was about 0.8% lower at 95.883, its lowest in about a year. For the week, the index was down 2.4%, its worst weekly performance since early February 2016.

"Another day of dollar underperformance, which has been concurrent with a precipitous tumble in U.S. Treasury yields," Jonathan Coughtrey, managing director at Action Economics, said in a note.

Investors have slashed their expectations for U.S. interest rates after an emergency Federal Reserve rate cut of 50 basis points earlier this week to counter the economic fallout from the spreading coronavirus.

Worries about the virus have left market fundamentals in the dust, and the 10-year note yield sank to a record low on Friday. That is wiping out the yield advantage that had fueled a popular carry globally - borrowing at negative rates in the euro and yen to buy U.S. assets. Markets now bet the Fed will again cut rates by 50 basis points this month.

The euro climbed about 0.8% to an eight-month high of 1.1328. Against the Japanese yen, the dollar was down 0.9% at 105.19 yen, a more than six-month low.

Currency volatility gauges rose on Friday, with one-month euro-dollar implied volatility reaching its highest since November 2018.

The dollar found little support from data that showed U.S. employers maintained a robust pace of hiring in February, giving the economy a strong boost as it confronts the coronavirus outbreak that has stoked financial market fears of a recession.

"The print is very impressive," said John Doyle, vice president for dealing and trading at Tempus Inc in Washington.

"But I think the positivity of the numbers will be drowned out by the overarching risk-off environment today," Doyle said.

Sterling extended gains against the broadly weaker dollar and was also boosted by comments from the European Union's Brexit chief negotiator that a trade deal between Britain and the bloc was still possible this year. The currency was up 0.56% at $1.3026.