US dollar rises from three-month low; euro dips as inflation cools

THE greenback rose slightly on Wednesday (Nov 29) after falling to its lowest in more than three months on hopes that the Federal Reserve will soon cut rates, while the euro slipped as data showed European inflation cooled in November.

Comments from Fed official Christopher Waller flagging a possible rate cut in the months ahead sent US bond yields and the US dollar sliding on Tuesday.

“(Waller’s) relatively hawkish, historically speaking, so if his attitude is turning a little bit more dovish, it sort of says that perhaps a general consensus of the board members is that rates have peaked and maybe could even be cut next year,” said Kyle Rodda, senior financial market analyst at Capital.com.

The US dollar index, which tracks the currency against six peers, hit its lowest since early August at 102.46 in the Asian trading session.

It then bounced somewhat and was last up 0.18 per cent at 102.8. The US dollar was on track to fall 3.7 per cent in November, its biggest monthly drop in a year.

“Essentially it’s come off the back of the US and global bond rally, in particular with the US 10-year (Treasury note),” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

The US 10-year Treasury yield dropped five basis points on Tuesday and was down by the same amount again on Wednesday to 4.2898 per cent, its lowest since mid-September.

Yields move inversely to prices, and lower bond yields make fixed income investments in a country look less attractive relative to peers, weighing on the local currency.

The euro briefly crossed US$1.10 for the first time since August on Tuesday but pared gains and was last down 0.1 per cent at US$1.0984.

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Inflation data from Germany, Europe’s biggest economy, showed that price growth slowed to 2.3 per cent year on year in November from 3 per cent in October. Inflation in Spain also slowed sharply.

“On an intraday basis (the euro) has come off the high... but of course on the flip side US bond yields are continuing to grind lower,” said Tan. “There are two contrasting forces at play here.”

The eurozone-wide inflation figure is due out on Thursday, before the Fed’s preferred measure of US inflation, the personal consumption expenditures index.

New Zealand’s dollar was last up 0.34 per cent at US$0.6157, after the Reserve Bank of New Zealand on Wednesday held interest rates but warned that further policy tightening might be needed.

The kiwi had surged more than 1 per cent earlier in the session to a four-month high of US$0.6207.

Japan’s yen, which is particularly sensitive to US bond yields, held on to recent gains on Wednesday. The US dollar up 0.1 per cent at 147.55 after earlier falling to a more-than-two-month low of 146.68 yen.

China’s onshore yuan finished the domestic session at 7.1246 per US dollar, the strongest closing price since Jun 16. REUTERS