US dollar dips as European markets return from break

THE US dollar gave back the previous day’s advances against the euro and pound on Tuesday (Apr 11) as traders turned their attention to US inflation data due on Wednesday for signs of how close US rates are to peaking.

The euro was up 0.52 per cent at US$1.0918 and the pound rose a similar amount to US$1.2439 as most European markets returned from the long Easter weekend.

Both currencies over the break had slipped from their early April peaks after resilient US labour market released on Friday bolstered the case for a Federal Reserve rate hike next month, and also eased fears about a sharper US economic slowdown.

“The Fed’s early May meeting is beginning to loom and the data on the way to that is very much the focus,” said Jane Foley, head of FX strategy at Rabobank. She added that the euro’s ability to jump clear of US$1.09 would depend on the upcoming data and what it meant for US interest rates.

“Bank earnings will also be important. They don’t often reach across to FX markets directly, but they might, given the recent jitters,” Foley added.

Tuesday’s moves were also affected by European markets’ reopening after the break, said Simon Harvey, head of FX analysis at Monex Europe, given the limited liquidity on Friday and Monday with most European markets closed. He noted that algorithms trading currencies based on the difference between European and US rates might have sold euros for dollars when US Treasury yields rose after the jobs data while European bond markets were closed.

European bond yields rose sharply on Tuesday, catching up after the break. “There’s just that catch-up effect flushing through,” Harvey said.

The US dollar also slid against the Japanese yen, dropping 0.4 per cent to 133.03, having jumped 1.1 per cent on Monday helped by new Bank of Japan governor Kazuo Ueda, who vowed at his inauguration on Monday to stick with ultra-easy stimulus settings.

Traders now see roughly a two-thirds chance that the Fed will raise rates by another quarter point on May 3, according to the CME’s Fedwatch tool.

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The greenback also softened elsewhere, dropping 0.6 per cent against the Swiss franc to 0.9041.

Bitcoin touched a fresh 10-month high at US$30,438 on Tuesday before last fetching US$30,140, after breaking free of recent ranges on Monday. The digital token had been stuck between about US$26,500 and US$29,400 for the previous three weeks. REUTERS