FOREX-Dollar slumps to 6-week low, Bitcoin steadies after weekend drop

* Dollar slumps to 6-week low
* Carry trade may thrive in low vol environment - ING
* MSCI EM FX index hits 1-month high
* Bitcoin trades near $57k after weekend plunge
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Ritvik Carvalho
LONDON, April 19 (Reuters) - The dollar slumped to a
six-week low against major peers on Monday, with Treasury yields
near their lowest in five weeks, after the U.S. Federal Reserve
reiterated its view that any spike in inflation was likely to be
temporary.
The dollar was also held down by improved risk sentiment
amid a rally in global stocks to record highs.
Bitcoin BTC=BTSP stabilized after losses from Sunday, when
it plunged as much as 14% to $51,541, which a report attributed
to news of a power outage in China.
The dollar index =USD , which tracks it against six other
currencies, fell to 91.079, not far from last week's low of
91.484, a level not seen since March 18.
The greenback's weakness was pronounced across the board on
Monday, with the currency hitting multi-week lows against major
peers in the G10 group of currencies: the Japanese yen, the
Swiss franc, the Australian dollar and the New Zealand dollar,
and the euro.
The 10-year Treasury yield sank as low as 1.5280% last week
from 1.7760% at the end of last month, its highest in more than
a year.
"Indeed, the USD rally is all but distant memory by now and
the currency's underperformance seems to reflect the apparent
divergence in the outlook between the slumping UST yields and
the rather perky bond yields elsewhere," said Valentin Marinov,
head of G10 FX research at Credit Agricole.
"This is almost the exact opposite of the moves we saw in
March and, given that the U.S. fundamentals have improved
sharply since March, the UST yield drop could reflect the
negative impact of the huge cash injection from the unwinding of
the TGA that started last month."
The euro rose above $1.20 for the first time in over six
weeks, touching a high of $1.2048 by midday in London.
EUR=EBS . The European Central Bank meets on Thursday with
internal divisions over the pace of bond buying, extended
COVID-19 lockdowns and potential delays to the EU recovery fund
forming the backdrop.
Fed Governor Christopher Waller said on CNBC on Friday that
the U.S. economy "is ready to rip" as vaccinations continue and
activity picks up, but a rise in inflation is likely to be
transitory, echoing comments from other Fed officials, including
Chair Jerome Powell, over the past week. "With liquidity still abundant, we are going to hear more
about the FX carry trade – which thrives in a low volatility
environment," said Chris Turner, global head of markets and
regional head of research for UK and CEE at ING.
"This especially being the case if the Fed manages to make
the April 28th meeting a non-event. With the SOFR overnight USD
interest rate now at 0.01%, the dollar clearly doesn't score
highly on the carry front. And indeed a little more confidence
in the European and global recovery stories may well see flows
start to resume to EM – having been derailed by the Treasury
sell-off in February and March."
MSCI's emerging market currency index hit its highest level
in a month, trading 0.2% higher on the day. .MIEM00000CUS The
Chinese yuan, which forms about 30% of the index's weight,
strengthened to its highest since March 23, up 0.4% on the day
to 6.5031 per dollar. CNH=D3
Bitcoin stabilized around $57,000 after a plunging on
Sunday.
Data website CoinMarketCap cited a blackout in China's
Xinjiang region, which reportedly powers a lot of bitcoin
mining, for the selloff. Despite recent weakness, the world's most popular
cryptocurrency remains up 97% in 2021, after more than
quadrupling last year.

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