Dollar hovers near two-year low as traders push euro longs to record high

A hand holds a series of fanned out U.S. dollar notes.

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The U.S. dollar fell against a basket of major currencies for a fifth consecutive trading day on Tuesday, approaching its lowest level in two years under pressure from low yields and bleak economic data in the United States.

The dollar has enjoyed years of gains but the coronavirus pandemic has hit the world’s largest economy hard, leaving investors looking for growth opportunities elsewhere.

The dollar index was last down 0.3% at 92.55, closing in on a two-year low of 92.49.

A fresh rally in tech stocks provided a positive backdrop for markets and subdued demand for the safe-haven dollar, while a worse than expected reading of the New York Fed’s Empire State business conditions index in August also helped traders stick to their bearish convictions for the currency.

Net bearish bets on the greenback rose to their largest since May 2011 last week, and spot trade in recent days suggests the position has only grown further since.

Real money and leveraged investors preferred to express their negative view on the dollar via the most traded currency pair in the world – euro/dollar – pushing euro longs to a new record high in the week to Aug. 11, latest CFTC data showed.

“The dollar weakness is not over, so I would not subscribe to the camp that says it has become a crowded trade,” said Neil Jones, head of hedge fund sales at Mizuho.

“There’s a sufficient amount of momentum and a positive sentiment as well for the euro, so I would suggest that there is a lot more going on in euro/dollar.”

He said all eyes were on key psychological $1.20 level versus the euro, with further gains in store if the level is broken.

The dollar was down 0.2% versus the euro at $1.1895 and had fallen 0.5% against the Japanese yen to 105.40 , a 1-1/2-week low.

The yield on the 10-year US Treasury bond has drifted back below 0.70% in recent days after rising from a low of 0.50% hit earlier this month.

The greenback also declined 0.5% against the British pound to $1.3170, its weakest level in nearly two weeks..

Elsewhere, the Chinese yuan firmed to 6.9192 per dollar in the offshore trading, a level unseen since March 9, despite the Donald Trump administration flagging a further tightening of restrictions against Chinese tech gear maker Huawei.

Among G10 currencies, the kiwi was the laggard as New Zealand’s largest city remained under lockdown and anticipation of future monetary easing weighs on the currency.

It last bought $0.6549 and traders said bets on the kiwi dropping had helped support the Aussie as investors sought exposure to the Aussie/kiwi cross, which is trading at a two-year peak.

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