US Dollar dips after rally but renewed risk appetite curbs fall
Frankfurt (Oct 26) The dollar edged down from a 2-1/2-month high versus a basket of major currencies on Monday, although an increase in risk appetite in the wake of a new round of monetary easing from China limited the greenback's losses.
Global stock markets rallied after China on Friday cut rates for the fifth time this year, just a day after the European Central Bank signaled that it was ready to increase the scale of its stimulus measures.
The benchmark 10-year U.S. Treasury note yield rose nearly 6 basis points on Friday to a 2-week high as demand for safe havens waned, providing broad support for the dollar, whose index hit 97.201, the strongest since Aug. 12.
But the index edged down 0.23 percent on Monday to 96.90, while the greenback fell half a percent against the yen to 120.84 yen.
"There's a mild correction following last week's big moves but our bias would certainly be for further downside in the euro and further upside in dollar/yen," said BNP Paribas currency strategist Sam Lynton-Brown in London.
The euro gained 0.11 percent to $1.1030, pulling away from a 2-1/2-month low of $1.0989 hit at the start of the Asian trading session. A slightly better-than-expected monthly German business confidence survey had little effect on the currency. Lynton-Brown said economic data would be unlikely to move the single currency much at the moment.
"The ECB we heard on Thursday were an ECB who were preempting any possible downturn, they were not an ECB who were going to respond in the short-term to any better data," he said.
China's easing late on Friday was the latest reminder of the monetary policy divergence emerging between the U.S. Federal Reserve, which is expected to raise interest rates in the coming months, and other central banks.
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The U.S. Federal Reserve makes its latest policy decision on Wednesday, and is expected to keep rates on hold for now. But after last week's dovish suprises, Sweden's Riksbank, the Reserve Bank of New Zealand and the Bank of Japan, which all hold policy meetings this week, will be closely watched.
"Globally, the focus right now is on central banks and monetary policy as a whole. Dollar/yen for example was driven higher by a general improvement in risk appetite, not on hopes of easing by the Bank of Japan alone," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.
Source: CNBC
