FOREX-Dollar holds gains as expectations for Biden's stimulus grow

LONDON (Reuters) – The dollar held above three-year lows versus major peers on Thursday as expectations for President-elect Joe Biden’s fiscal stimulus pushed yields of U.S. government bonds higher.

FILE PHOTO: A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration

The 10-year Treasury yield rose after CNN reported the stimulus will be around $2 trillion, adding support for the dollar.

In early European morning trading, the dollar index was little changed, up 0.04% at 90.320, as investors waited for Biden to give details later today of a plan for “trillions” of dollars in pandemic relief.

The dollar has risen in four of the past five trading sessions as the prospect of more stimulus has weighed on U.S. government bonds, sending the benchmark Treasury yield above 1% for the first time since March.

Expectations are already running high for the stimulus, but many analysts believe the spending push has already been priced in.

“We feel the fiscal cat is out of the bag already: it would take a lot to surprise markets after the re-pricing seen last week”, ING analysts said. “The scope for the reflation trade to restart on the back of this announcement alone is limited.”

Moreover, the currency’s recent recovery is threatened by a build-up of bearish dollar positions.

FX speculators have been net short the dollar since mid-March, as investors’ surging appetite for riskier assets hurt demand for the greenback.

Because U.S. stimulus supports risk sentiment, it could weigh on the dollar, which is considered a safe haven.

The euro slipped 0.05% to $1.214 after sliding 0.4% on Wednesday.

The dollar advanced 0.13% to 104.02 yen.

Bitcoin held on to 10% gains made on Wednesday after sliding almost $12,000 from last week’s record high of $42,000. It rose 3% to $38,860 on Thursday, up from as low as $30,261.13 on Jan. 11.

Interest in the cryptocurrency has been soaring as institutional investors began buying heavily, viewing it as both an inflation hedge and as exposed to gains if it becomes more widely adopted.

Reporting by Kevin Buckland; editing by Ana Nicolaci da Costa, Simon Cameron-Moore, Larry King