The dollar sank to a six-year trough against the Canadian dollar and teetered near multi-month lows versus other major peer currencies on Tuesday, as Treasury yields stalled amid renewed expectations the United States will not hike interest rates anytime soon. Dallas Federal Reserve President Robert Kaplan on Monday reiterated that he does not expect interest rates to rise until next year, fueling a further decline in bets that inflationary pressure could force the Fed to act sooner. This week a host of Fed policymakers are scheduled to speak, and the U.S. central bank will also release minutes from its most recent meeting, which may give indications about where monetary policy is headed. The growing market consensus is that the Fed will tolerate what it sees as a temporary acceleration in inflation, which will keep the dollar lower against most major currencies. “The dollar is on its knees and this seems to be a direct result of how investors feel about the U.S. inflation outlook and the Fed’s reaction,” said Valentin Marinov, head of G10 FX research at Credit Agricole. Marinov highlighted two inflation outlook scenarios that would have different impacts on the markets – the first one being the current market expectation that price growth will soon ease. “This will keep the Fed dovish, U.S. real yields very negative and the dollar weak … boosting commodity prices and supporting risk assets,” he said. “Under the second inflation outcome, we see a more persistent rebound of the U.S. inflation this and, potentially, early next year.” Under Marinov’s central scenario, that could nudge the Fed towards tapering bond purchases this summer, thus boosting the outlook for U.S. Treasury yields and the dollar. The benchmark 10-year U.S. Treasury yield stood at 1.6471%, extending a pullback from a five-week high reached last week. The dollar traded above $1.22 to the euro, the single currency hitting its highest against the greenback since Feb. 25. The British pound rose past $1.42 for the first time since Feb. 24. Sterling has been buoyed as investors cheer the gradual lifting of strict coronavirus restrictions. The Canadian dollar advanced to a six-year high of 1.2013 to the greenback, aided by a rise in oil prices. Up 5% against its U.S. peer year-to-date, the trader-nicknamed “loonie” is the best performing G10 currency on the year. The dollar lost 0.3% to 108.96 yen. The Japanese currency is the worst-performing G10 currency this year, down over 5% year-to-date against the greenback amid worries about Japan’s slow pace of vaccinations and weakness in the greenback. Some investors were already scaling back expectations for a Fed rate hike this year, and Kaplan’s comments gave traders even more incentive to sell the dollar. The onshore yuan edged up to 6.4188 per dollar, not far from an almost three-year high reached last week. The Australian and New Zealand dollars rose as much as half a percent each against their U.S. counterpart. In the cryptocurrency market, bitcoin rose 3.3% to $45,023.53 but was still close to a three-month low after Tesla boss Elon Musk dented enthusiasm for the digital asset. Rival digital currency ether rose 6.50% to $3,494, steading from a two-week low on Monday.

Oil prices climbed on Tuesday, extending gains from the previous day, as optimism over the reopenings of the U.S. and European economies outweighed fears of slower fuel demand in Asia due to surging COVID-19 cases and a new wave of restrictions.

Brent crude oil futures were up 20 cents, or 0.3%, at $69.66 a barrel by 0231 GMT, while West Texas Intermediate (WTI) was up 19 cents, or 0.3%, at $66.46 a barrel.

Both contracts rose more than 1% on Monday.

“The market remained in a tight trading range amid the tug-of-war between worries over spreading coronavirus infection cases in Asia and optimism from economic reopenings in Europe and the United States thanks to vaccinations,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

“Also, some expectations that negotiations between Iran and the United States may lead to a resumption of Iranian oil exports is limiting the upside of oil prices,” he said.

The British economy reopened on, giving 65 million people a measure of freedom after a four-month COVID-19 lockdown. And with accelerating vaccination rates, France and Spain have relaxed restrictions, and Portugal and the Netherlands have opened up travel.

In the United States, New York state will no longer require masks in most public spaces for people fully vaccinated against COVID-19 as of Wednesday, and other regions are opening up their economies as well.

In Asia in contrast, Singapore reported the highest number of local infections in months and Taiwan saw a spike in cases, and both countries have reinstituted lockdown measures.

In India, the second-hardest hit by the pandemic, domestic sales of gasoline and diesel by state refiners plunged by a fifth in the first half of May from a month earlier as pandemic lockdowns hit industrial activities and consumption, preliminary data showed on Monday.
With regard to the Iran-U.S. talks, as the United States tries to reinstate the 2015 Iran nuclear deal, it is tiptoeing through a minefield of sanctions put down by former U.S. President Donald Trump after he abandoned the deal three years ago.