NEW YORK (Reuters) – The dollar dropped against a basket of six major currencies on Tuesday, as lower U.S. Treasury debt yields drove investors to trim long bets, giving a fillip to the euro that has so far proven resilient despite talk of looser monetary policy.
Expectations of month-end rebalancing flows by asset managers could also see the dollar weaken against currencies including the euro and the British pound.
The dollar slightly pared losses after data showed permits for future U.S. home construction rose to their highest level in nearly 5-1/2 years in October.
Separate data showed U.S. single-family home prices rose in September and posted their strongest annualized gain in 7-1/2 years.
The dollar index .DXY, which is dominated in composition by the euro, fell to 80.636, its lowest since November 20 and was last down 0.2 percent at 80.770. The index has fallen as U.S. 10-year Treasury yields have fallen.
“The dollar’s own issues about whether Fed tapering will take place or not make the euro the next best alternative,” said Daragh Maher, currency strategist, at HSBC. “But the euro is looking rather toppish here.”
The euro was up 0.1 percent at $1.3528, having hit a session high of $1.3571 and triggering stop loss buy orders above $1.3560. Near-term resistance is at its November 20 high of $1.3584.
Part of the reason for the euro holding up is some speculation that euro zone inflation, due later in the week, could show a slight rise in prices, pushing back expectations that the European Central Bank will take further action to fight disinflationary pressures in the near term.
Forecasts are for November euro zone flash inflation at 0.8 percent, year-on-year, up from 0.7 percent in October. Last month, after a shock drop in inflation, the ECB cut rates to a record low, pushing the euro to a near two-month trough.
“Inflation readings are starting to have a much greater impact on currencies than before,” added HSBC’s Maher.
Also with excess liquidity in the euro zone banking system dwindling to its lowest level since September 2011, short term market rates are climbing and helping the euro.
The euro was trading not far from a four-year high against the yen at 137.34 yen.
The dollar, however, eased 0.1 percent at 101.54 yen, pulling away from a six-month high of 101.91 yen hit on Monday after data showed contracts to buy previously owned U.S. homes hit a 10-month low in October.
The data raised questions about the economic recovery, prompting profit-taking in the dollar, which had gained 1.9 percent versus the yen in three sessions.
“Short yen positions appear stretched and we have taken profits in our long dollar/short yen position,” said Yujiro Gato, currency strategist at Nomura. “Dollar/yen should be trading in a 100-102 range in the next five weeks with a drop to 100 and below a good level to go long on the dollar again.”
Gato added new Japanese investment rules could also see some buying of the yen against the dollar and other major currencies by retail investors in the short term.
However, in the longer term the yen will remain weak on expectations the Bank of Japan’s commitment to an ultra-easy policy will keep it the best funding currency for carry trades, especially against European currencies.
(Additional reporting by Anirban Nag in London- Editing by Theodore d’Afflisio)
0 comments
Share
