- Dollar retreats as risk sentiment improves
- Carry trade has boosted demand for U.S. dollar
- Fed's Powell affirms that Fed on hold
(Recasts with euro bounce, adds quote, updates prices)
The dollar retreated from a four-month high against the euro on Tuesday as risk appetite improved, following a weeklong rally as investors chased higher returns in the United States.
The S&P 500 .SPX and the Nasdaq .IXIC opened at all-time highs on Tuesday after China's foremost medical adviser on the coronavirus outbreak said the epidemic may peak this month.
The death toll in mainland China from the outbreak climbed past 1,000 on Tuesday, but the number of new confirmed cases fell.
"There’s been a bit of a disjoint with the way the equity market has been trading in the last couple of sessions and the way the FX markets have been moving, and I think to some degree we’re seeing a bit of catchup on the FX side of things," said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.
Concerns about the economic impact of the coronavirus have added a safety bid for the greenback in recent sessions, while economic data has boosted the view that the U.S. economic outlook is stronger than the euro zone's.
The dollar has also gained as low volatility across most of the foreign exchange market has 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 nonexistent in the FX market, a lot of people are piling into this short euro, long higher beta, higher interest rate currencies.”
The euro EUR= fell as low as $1.0892 on Tuesday, the lowest since Oct. 1, before bouncing back to $1.0921.
Comments by Federal Reserve Chairman Jerome Powell on Tuesday affirmed the view that the U.S. central bank is unlikely to change interest rates in the near term.
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.
======================================================== Currency bid prices at 10:08AM (1508 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar EUR= $1.0921 $1.0909 +0.11% -2.58% +1.0923 +1.0892 Dollar/Yen JPY= 109.8300 109.7400 +0.08% +0.89% +109.9400 +109.7500 Euro/Yen EURJPY= 119.95 119.76 +0.16% -1.64% +120.0000 +119.6100 Dollar/Swiss CHF= 0.9774 0.9770 +0.04% +0.98% +0.9787 +0.9766 Sterling/Dollar GBP= 1.2960 1.2913 +0.36% -2.26% +1.2968 +1.2896 Dollar/Canadian CAD= 1.3281 1.3315 -0.26% +2.27% +1.3320 +1.3281 Australian/Doll AUD= 0.6732 0.6686 +0.69% -4.12% +0.6735 +0.6682 arEuro/Swiss EURCHF= 1.0675 1.0662 +0.12% -1.63% +1.0679 +1.0657 Euro/Sterling EURGBP= 0.8424 0.8447 -0.27% -0.35% +0.8458 +0.8421 NZ NZD= 0.6415 0.6383 +0.50% -4.77% +0.6416 +0.6380 Dollar/DollarDollar/Norway NOK= 9.2361 9.2884 -0.56% +5.21% +9.2917 +9.2370 Euro/Norway EURNOK= 10.0893 10.1348 -0.45% +2.56% +10.1379 +10.0830 Dollar/Sweden SEK= 9.6287 9.6574 -0.21% +3.01% +9.6736 +9.6298 Euro/Sweden EURSEK= 10.5167 10.5387 -0.21% +0.45% +10.5505 +10.5176
