- Carry trade boosts demand for U.S. dollar
- Coronavirus concerns maintain safety bid for greenback
(New throughout, updates prices, market activity and comments to U.S. market open, new byline, changes dateline, previous LONDON)
The dollar hit a four-month high against the euro on Tuesday as investors chased higher returns in the U.S., and after Federal Reserve Chairman Jerome Powell adopted an upbeat view of the U.S. economy.
The greenback has gained against the single currency as data reinforces a view that the U.S. economic outlook is more favorable than that of the euro zone, and on safety buying on concerns about the economic impact of the coronavirus outbreak that originated in China.
Low volatility across most of the foreign exchange market has also encouraged investors to seek out carry trades, where they borrow in low-yielding currencies such as the euro and the franc and invest in dollars or other high-yielding currencies.
“One of the big prevailing narratives right now is for the carry trade,” said Erik Nelson, a currency strategist at Wells Fargo in New York. “As volatility seems to be non-existent in the FX market a lot of people are piling into this short euro, long higher beta, higher interest rate currencies.”
At the same time, “you’re looking at a euro zone economy that just can’t seem to get a lot of traction,” Nelson said. “That’s also more fundamentally supporting this idea that the euro is sort of flat on its back right now.”
The euro EUR= fell as low as $1.0892 on Tuesday, the lowest since Oct. 1, before rising back to $1.0907.
Comments by Powell on Tuesday affirmed the view that the U.S. central bank is unlikely to change interest rates in the near term.
Over the second half of 2019 "the economy appeared resilient to the global headwinds that had intensified last summer," Powell said in remarks to the House Financial Services Committee, as economic activity increased further and the labor market strengthened.
With risks like trade policy uncertainty receding and global growth stabilizing, Powell signaled he saw no reason to adjust U.S. interest rates, unless new developments cause a "material reassessment" to the current outlook.
Concerns about the spread of the coronavirus also maintained a safe haven bid for the U.S. dollar.
The death toll in mainland China from the outbreak climbed past 1,000 on Tuesday, but the number of new confirmed cases fell.
======================================================== Currency bid prices at 9:11AM (1411 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar EUR= $1.0907 $1.0909 -0.02% -2.70% +1.0920 +1.0892 Dollar/Yen JPY= 109.7600 109.7400 +0.02% +0.83% +109.9400 +109.7500 Euro/Yen EURJPY= 119.74 119.76 -0.02% -1.82% +120.0000 +119.6100 Dollar/Swiss CHF= 0.9778 0.9770 +0.08% +1.03% +0.9787 +0.9766 Sterling/Dollar GBP= 1.2953 1.2913 +0.31% -2.31% +1.2957 +1.2896 Dollar/Canadian CAD= 1.3296 1.3315 -0.14% +2.39% +1.3320 +1.3288 Australian/Doll AUD= 0.6715 0.6686 +0.43% -4.36% +0.6719 +0.6682 arEuro/Swiss EURCHF= 1.0667 1.0662 +0.05% -1.70% +1.0679 +1.0657 Euro/Sterling EURGBP= 0.8420 0.8447 -0.32% -0.40% +0.8458 +0.8421 NZ NZD= 0.6400 0.6383 +0.27% -4.99% +0.6400 +0.6380 Dollar/DollarDollar/Norway NOK= 9.2450 9.2884 -0.47% +5.32% +9.2917 +9.2468 Euro/Norway EURNOK= 10.0847 10.1348 -0.49% +2.51% +10.1379 +10.0870 Dollar/Sweden SEK= 9.6495 9.6574 -0.12% +3.23% +9.6736 +9.6489 Euro/Sweden EURSEK= 10.5262 10.5387 -0.12% +0.54% +10.5505 +10.5280
