Dollar Retreats from Two-Year Highs as Treasury Markets React Positively to Trump’s Treasury Secretary Pick
The U.S. dollar retreated from its two-year highs on Monday as Treasury markets rallied in response to President-elect Donald Trump’s selection of hedge fund manager Scott Bessent as Treasury secretary. Investors interpreted Bessent’s appointment as a signal of potential fiscal discipline, triggering a surge in demand for U.S. government bonds. This rally pushed yields on 10-year Treasuries down significantly, marking the most substantial decline since early August. Two-year Treasury yields also experienced a notable drop, narrowing the interest rate advantage that had been bolstering the dollar.
The euro capitalized on the dollar’s weakness, appreciating by 0.83% against the greenback. This rebound followed a recent slide that had pushed the euro to its lowest level versus the dollar since November 30, 2022. The Japanese yen also gained ground against the dollar, strengthening by 0.37%. While Bessent’s reputation as a fiscal conservative and a strong dollar advocate suggests the currency’s reprieve may be temporary, market participants viewed his nomination as a potential moderating influence on the incoming administration’s economic policies.
Market analysts cautioned against overinterpreting the initial market reaction, emphasizing the uncertainty surrounding the power dynamics within the new administration and the extent of influence Bessent will wield. Some attributed the market moves more to pre-existing market positioning than a fundamental shift in policy expectations. The U.S. Dollar Index, which measures the greenback’s performance against a basket of six major currencies, fell 0.61%, retreating from its recent two-year high.
Thin trading volume ahead of the U.S. Thanksgiving holiday likely exacerbated the market fluctuations. The week’s economic calendar is relatively light, with the second reading of third-quarter U.S. GDP and the October Personal Consumption Expenditures price index being the key data releases. The dollar’s eight-week rally, fueled by anticipation of inflationary pressures under Trump’s policies, had pushed several technical indicators into overbought territory, suggesting a potential correction was overdue.
Diverging interest rate outlooks between the U.S. and the Eurozone also contributed to recent currency movements. Weaker-than-expected European manufacturing data and stronger-than-anticipated U.S. surveys widened the gap between European and U.S. bond yields, further benefiting the dollar. Market expectations for more aggressive easing by the European Central Bank, coupled with a scaling back of rate cut expectations from the Federal Reserve, amplified the divergence.
The euro had suffered losses on Friday following disappointing European manufacturing data, while the British pound rebounded slightly after hitting a six-week low. The Mexican peso strengthened against the dollar, while the Canadian dollar and the Chinese yuan saw more modest moves. In the cryptocurrency market, Bitcoin experienced a pullback after its recent surge to record highs, consolidating below the symbolic $100,000 mark. The cryptocurrency’s rally had been driven by expectations of a more favorable regulatory environment under the Trump administration.
