The dollar held on to most of its overnight gains on Thursday as investors cheered signs of easing U.S.-Sino trade tensions and stronger-than-expected U.S. economic data, sending Wall Street stocks surging and Treasury yields up.
In a dramatic turn to lift off bear-market territory, the Dow Jones Industrial Average rocketed more than 1,000 points for the first time on Wednesday, while U.S. 10-year yields rallied around 8 basis points to end at 2.8 percent.
That gave the dollar some respite from weeks of pressure brought on by a sell-off in U.S. bonds on heightened concerns about slowing U.S. growth, Sino-U.S. trade tensions and – more recently – a partial U.S. government shutdown.
Faced with deepening gloom, investors were quick to latch on to media reports that a U.S. trade team will travel to Beijing the week of Jan. 7 to hold talks with Chinese officials.
Markets also lapped up data showing U.S. 2018 holiday sales rose 5.1 percent from a year ago to over $850 billion, the strongest gain in six years.
“Investors are coming back to the U.S. markets after a build-up of lot of fearmongering..this would be supportive of the dollar as well as treasury yields and stocks,” said Stephen Innes, head of Asian trading at Oanda.
“Trade war risk is abating somewhat..so risk-on sentiment should also be supportive of emerging market currencies,” added Innes.
The dollar index, a gauge of its value versus six major peers, was steady at 96.91, after gaining 0.5 percent on Wednesday.
The U.S. currency was a touch lower versus the yen at 111.10 after bouncing 1 percent overnight and breaking a safe-haven driven 8-day stretch of gains for the Japanese currency.
“If risk sentiment keeps improving and Dow futures extend their gains in the Asia session, I would expect dollar/yen to move higher still,” Innes said, though he warned that it was too early call a turn in risk sentiment.
That sentiment was underscored by the modest moves in other currencies such as the euro and sterling, with slowing global growth to Brexit woes to political uncertainty in Europe and the United States checking enthusiasm.
The euro fetched $1.1362, steadying in early Asian trade after losing 0.1 percent on the dollar on Wednesday.
Sterling, which has been battered by Brexit woes in recent months, was firm at $1.2650, having lost 0.4 percent the previous session.
A huge relief rally in oil prices gave some support to commodity currencies such as the Canadian dollar, which last traded at C$1.3572 after moving up 0.15 percent overnight.
The Australian dollar, often considered a gauge of global risk appetite, tacked on 0.1 percent to build on its 0.4 percent gain in the previous session.