Dollar loses ground as euro climbs on hope of ECB tapering
The dollar index continued to weaken on Tuesday, pressured by a resurgence of geopolitical tensions with North Korea, as well as advances by the British pound and the euro as traders regained confidence in the U.K. economy and eyed potential actions by the European Central Bank.
In Spain, Catalan leader Carles Puigdemont spoke about the recent referendum, delaying the announcement of independence in favor of dialogue with the Spanish government.
Where are currencies trading?
The ICE U.S. Dollar index DXY, -0.11% slipped 0.5% to 93.225, falling for a third straight session. The benchmark on Friday hit a 10-week high after the September U.S. jobs report was seen as strengthening the case for the Federal Reserve to raise interest rates in December. The broader WSJ Dollar index BUXX, -0.06% slipped 0.4% to 86.58.
The euro EURUSD, +0.0762% climbed to an intraday high of $1.1826 on Tuesday, but retreated to $1.1818, still up from $1.1743 late Monday. Meanwhile the British pound GBPUSD, +0.0682% rose to $1.3208, compared with $1.3141 on Monday.
The dollar weakened against the Japanese yen USDJPY, +0.00% Swiss francUSDCHF, -0.0615% and the Canadian dollar USDCAD, -0.1198% on Tuesday. One dollar bought ¥112.41 down from ¥112.68, as well as 0.9749 francs, compared with 0.9798 francs late Monday. The U.S.-Canadian dollar pair traded at C$1.2516, down from C$1.2551 late Monday.
Against the Turkish lira USDTRY, -0.2021% , the dollar slumped to 3.7047 lira from 3.7011 lira late Monday, which is a partial retracement of its Monday decline. The lira tumbled against the greenback on Monday to a six-month low after Turkey and the U.S. stopped issuing nonimmigrant visas to each other’s citizens, after Turkey arrested a Turkish employee who worked at the U.S. consulate in Istanbul.
What’s driving the market?
Euro traders were monitoring events in Catalonia, where separatist leader and Catalan President Puigdemont said he accepted the mandate of forming a Catalan republic, but refrained from declaring outright independence in an effort to engage in mediation with Madrid late Tuesday.
Earlier, the euro moved higher on the back of hawkish comments from ECB executive board member Sabine Lautenschlaeger, who said Monday the central bank should start scaling back its aggressive bond-buying program next year. Traders expect an update on the future of the asset-purchase program when policy makers meet later in October.
This in turn weighed on the dollar, as investors are also watching for signs regarding the progress on tax policy changes.
In the U.K., the pound got a lift from the latest developments in the country’s political drama, with Prime Minister Theresa May seen as warding off dissent within her government, at least temporarily.
What are strategists saying?
“Since the dust began to settle in the wake of Friday’s hectic nonfarm payrolls there seems to have been a shift in sentiment for the dollar. A correction has started to come through as the euro and sterling have both begun to find some support,” said Richard Perry, market analyst at Hantec Markets, in a note.
“The sharp rise in U.S. wage growth is still likely to be dollar supportive and a significant move against the dollar is unlikely at this stage,” he added.