By Yasin Ebrahim
Investing.com – The dollar fell sharply against its rivals Monday, paced by declining U.S. bond yields, but the pullback could be short-lived as the expected rise in rates has forced some on Wall Street to ease their bearish bets on the greenback.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.48% to 92.61.
U.S. bond yields slipped, though the 10-year yields remained above 1.7% after data showed U.S. services activity hit its highest level since 1997. The drag on the greenback from lower yields, however, is unlikely to continue in the wake of the positive economic backdrop.
"A backdrop of strong economic growth and rising inflation expectations may well see the U.S. yield curve continue to steepen. We continue to recommend a defensive posture in bonds," Wells Fargo (NYSE:WFC) said.
The poor start to the week in the dollar did little to knock optimism on the greenback as its three-month win streak has forced some on Wall Street to rein in the bearish calls.
"Although we still expect these currencies to appreciate versus the dollar over the coming quarters, firm U.S. growth and rising bond yields may keep the greenback supported over the short-term," Goldman Sachs (NYSE:GS) said. "After a choppy few months we are closing our recommended dollar short trade."
Still, the road ahead for the greenback could be paved with uncertainty in the form of a potential rebound in the euro.
Goldman Sachs forecasts the single currency to hit $1.28 against the dollar by year end - from the current level of $1.1813 – thanks to expected to boost vaccine rollout efforts.
France last week imposed a four-week lockdown including school closures from Saturday, while Italy extended restrictions as a third wave of Covid-19 sweeps across parts of the continent.