The United States of America dollar dropped on Tuesday, May 22, from a five-month high, losing momentum after a broad rally prompted by rising U.S. bond yields and relief at an easing in U.S.-China trade tensions.
The dollar’s index against a basket of six major currencies last traded at 93.367 .DXY, down from a five-month high of 94.058 set on Monday.
The prospect of a resolution to the U.S.-China trade tensions on Monday bolstered the dollar.s
But a pull-back in U.S. 10-year Treasury yields from seven-year highs set last week has encouraged traders to take some profits on their bullish dollar bets, said Gavin Friend, senior markets strategist at NAB in London.
“It’s been one heck of a jump for the dollar across the board really so this looks to me like a bit of profit-taking,” Friend said.
Following a prolonged spell of weakness, the dollar has gained 5.4 percent since mid-February, the biggest jump the currency has witnessed since 2015.
The investors who took big positions against the dollar anticipating it would fall in 2018 have been rushing to unwind and cover their positions, pushing the greenback even higher.
The view that many parts of the global economy were rising together had given the dollar less of an edge over other currencies earlier this year.
Over the past month, however, the dollar has been bolstered by generally solid U.S. economic data that has backed the Federal Reserve’s monetary policy tightening stance this year.
The greenback has also been able to strengthen against the euro which has been affected by concerns over political uncertainty in Italy.
Italy’s anti-establishment 5-Star Movement and the far-right League on Monday proposed Giuseppe Conte, a little-known law professor, as prime minister to lead their big-spending coalition government.
