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Dollar Slumps as U.S. Inflation Expectations Rise and Oil Surges

Vivien Lou Chen and Robert Fullem
·2 min read

(Bloomberg) -- The dollar fell against all its major developed-market peers Tuesday as a decision by major oil exporting countries to curb supply helped to lift crude, stocks rebounded and U.S. inflation expectations climbed.

A move by West Texas crude above $50 a barrel helped to trigger a deeper selloff in the greenback, with the Australian dollar and other commodity-related currencies gaining the most. The Bloomberg Dollar Spot Index extended its decline to as much as 0.6%, taking it close to the nearly three-year low it touched on Monday.

The U.S. currency was already under pressure as traders focused on the outcome of two key Senate elections in Georgia that will determine whether Democrats can take unified control of government. Polls there are due to close at 7 p.m. New York time, although final results may take days to determine.

“A Blue Wave sweep would most likely be dollar-negative due to increased stimulus, debt issuance,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. He also noted that increasing coronavirus case numbers in the U.S. are also weighing on the dollar.

Concerns about inflation were clearly evident in the bond market, which saw the breakeven rate on 10-year Treasuries rise as high as 2.0455%, the highest level since November 2018. The Institute for Supply Management’s gauge of prices paid for manufacturing materials, which came in higher than expected, also gave a boost to the inflation outlook.

The Australian dollar led gains, rising as much as 1.5% to 77.78 U.S. cents, the strongest since 2018, while the New Zealand and Norwegian currencies also surgedThe euro was up as much as 0.5% to $1.2306The yen, although often seen as a haven, also gained versus the greenback, appreciating to 102.61 per dollar, the strongest since March

(Updates prices)

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