The dollar retreated on Tuesday, February 13, as global equity markets tried to find their footing after last week’s rout, reviving investors’ appetite for riskier assets.
The dollar’s index against a basket of six major currencies fell 0.3 percent to 89.923, edging further away from Thursday’s half-month high of 90.569.
The dollar fell more than 0.5 percent on the day to five-month low below 108.05 yen on Tuesday, as European stock futures wobbled and Japanese stock erased earlier gains to check risk appetite that bounced on Wall Street gains.
The dollar slumped to as low as 108.015 yen, with next support seen as its 2017 low of 107.32. Japan’s Nikkei ended down 0.7 percent, erasing its earlier gains of 1.4 percent.ii
Still, many market players are not convinced the worst is over, with U.S. bond yields stuck at elevated levels ahead of Wednesday’s U.S. consumer price data that could rekindle worries about inflation.
“I think markets will remain shaky until (Federal Reserve Chairman Jerome) Powell’s congressional testimony on Feb. 28. Markets will try to test him until they hear his thinking,” said a trader at a U.S. bank.
The euro traded at $1.2290, bouncing off last week’s low of $1.2206, though it was still more than two cents below its 3-year high of $1.2538 hit on Jan. 25.
Buying the euro was one of the popular trades earlier this year on the view that the European Central Bank will scale back its stimulus later this year on the back of a strong recovery in the euro zone economy.
Although many market players remain bullish on the euro in the long term, the currency lacks fresh catalysts for further gains amid uncertainties ahead of Italy’s election in early March.
In Germany, Chancellor Angela Merkel and the leader of the Social Democrats (SPD) face criticism from within their own parties over a new coalition deal that must still be approved by disgruntled SPD rank-and-file members.
The risk reversal spreads for euro/dollar options have widened in favour of euro puts, suggesting investors have grown more cautious about the chances the single currency will fall.
The British pound edged up to $1.3846 from Friday’s low of $1.3764. Despite uncertainties around Brexit, the pound has been propped up by rising expectations the Bank of England will raise interest rates to curb inflation.
Rising risk appetite initially helped to lift the dollar against the yen but the upbeat mood quickly disappeared when traders saw Japanese shares failing to maintain hefty gains made in the morning.
The dollar fell more than 0.5 percent to 108.01 yen as the Nikkei erased its 1.4 percent intraday gain to end down 0.7 percent at a four-month closing low.
