Euro gives up gains against US dollar

London

THE euro gave up post-French election gains on Tuesday (Apr 12) and fell against the strengthening US dollar, bolstered by high bond yields ahead of US inflation data expected to reinforce bets on aggressive monetary tightening.

The US dollar index, which tracks its performance against a basket of 6 currencies, was up 0.1 per cent at 100.1 at 1100 GMT, its highest level in almost 2 years.

The euro was down 0.16 per cent against the US dollar at US$1.08660, after it rallied to US$1.09550 on Monday following the news that President Emmanuel Macron beat far-right challenger Marine Le Pen in the first round of presidential voting.

"USD remains supported due to the Fed's active monetary policy, but a lot has been priced in as regards monetary policy so that USD is probably going to find it increasingly difficult to appreciate further," said You-Na Park-Heger, currency analyst at Commerzbank.

The US dollar index is heading into its fourth consecutive quarter of gains amid expectations for higher interest rates.

Money markets are pricing in 221 basis points of rate hikes by December.

Ahead of an European Central Bank policy meeting due later this week, money markets are pricing in about 70 basis points of interest rate tightening by December.

The US dollar's recent gains against the Japanese yen have been its most striking. It has strengthened almost 10 per cent against the Japanese currency in the past 3 months as the Bank of Japan remained committed to maintaining ultra-easy policy.

Japanese Finance Minister Shunichi Suzuki said the government was closely watching the yen and that excess volatility and disorderly movements could have an adverse effect on the economy and financial stability.

The US dollar also gained on the offshore Chinese yuan, reaching a 2-week high of 6.390 before softening.

Sterling eased 0.1 per cent against the US dollar to US$1.3015 after UK employment data showed jobless rate slipped further below its level immediately before the coronavirus pandemic, underscoring inflation risks in the labour market that has the Bank of England on alert. REUTERS