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Euro weakens as market sell-off hits sentiment

London

THE euro fell from a two-week high on Tuesday as a sell-off in world stock markets and nervousness about Italian banks fed through to the currency, while boosting the Swiss franc and Japanese yen.

Earlier, cautious comments overnight by Federal Reserve officials about the global economic outlook, weak US data and a sell-off on Wall Street had knocked the dollar and supported the single currency.

But the euro gave up its gains as a tech share slide spooked European equities, Italian bank shares hit a two-year low and Italian bonds sold off again amid a continuing confrontation with the European Union over Rome's budget plans.

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"It's largely sentiment-driven. European markets have opened weaker and the Italian risk is still in the background and it doesn't help the euro," said Alvin Tan, strategist at Societe Generale.

Persisting worries about the China-US trade conflict and Brexit negotiations also kept investors jittery.

The euro fell 0.2 per cent to US$1.1430 at 1115 GMT, off the day's lows but below a two-week high of US$1.1472 reached earlier.

With investor nerves high, the safe-haven Japanese yen added 0.1 per cent to 112.46. The Swiss franc gained as much as 0.4 per cent versus the euro to 1.1339 francs before easing slightly.

Measured against a basket of its peers, the dollar index edged higher, up 0.1 per cent to 96.297, off its weakest in a fortnight.

The dollar has struggled in recent weeks as investors worry about slowing US economic growth.

Comments from Federal Reserve officials expressing concern about a potential global slowdown have encouraged some investors to bet the rate-hike cycle could be near its end.

US 10-year Treasury yields pulled back slightly, removing some support for the greenback. Overnight, the dollar was also weighed down by weak US housing data.

"For the US equity market to stabilise, either the rest of the world will have to show better growth or the Fed will have to moderate its stance. Both outcomes are US dollar-negative and explain why rising US equity volatility has failed to spill over into emerging markets," Hans Redeker, a Morgan Stanley strategist, wrote in a client note.

The Australian dollar skidded more than half a per cent before recovering slightly to trade at US$0.7271, down 0.3 per cent on the day, pushed lower by fears of China's economic slowdown. REUTERS