Euro stuck near four-month low as US bond yield rise supports dollar
LONDON (Reuters) – The euro remained stuck near four-month lows on Tuesday after weaker-than-expected economic growth in Germany and a rise in US Treasury yields helped the dollar recover following a pause in its rally.
The dollar’s strength also helped it gain to within a whisker of hitting a threeand-a-half month high versus the Japanese yen while major currencies elsewhere traded within tight ranges ahead of US retail sales data.
The greenback’s rally, which has seen the dollar claw back most of its 2018 losses after a reassessment of the path of US monetary policy versus other countries’, came to a halt last week following disappointing US inflation numbers.
Euro bulls were also given a boost on Monday when European Central Bank policy-maker François Villeroy de Galhau said that the ECB could give fresh guidance on the timing of its first rate hike as the end of its exceptional bond purchases approaches.
“After the US CPI [consumer price inflation] data the dollar’s momentum has fallen off,” said Alvin Tan, an FX strategist at Societe Generale. “For our view to be validated, that euro/dollar will move higher, we will need to see European data pick up again. Data is going to be important in the near term.”
German economic growth slowed slightly more than expected in the first quarter of the year due to weak trade, but analysts called it a blip and predicted Europe’s biggest economy would shift into a higher gear again.
A survey showed that the mood among German investors remained unchanged at its lowest level in five and a half years in May, reflecting persisting concerns that the country’s economy could be hit be a trade dispute with the United States.
The euro slipped 0.1% to $1.1919, but remained below Monday’s high of $1.1996, which was the common currency’s highest level since May 3.
The dollar’s index rose 0.2% to 92.764, pulling up from 92.243 on Monday, which was its lowest level since May 2.
The benchmark 10-year US Treasury yield increased two basis points to about 3.019%, after rising two basis points on Monday, helping support the greenback.
The benchmark yield was supported by signs of an easing in trade tensions between the United States and China after President Donald Trump pledged to help Chinese telecoms firm ZTE Corp., which has been penalized for violating US sanctions with Iran.
The Norwegian crown rose 0.3% versus the euro to 9.56 crowns after strong quarterly economic data raised expectations of a rate rise later this year. It later gave up most of those gains.
The ailing Turkish lira fell to a fresh record low of 4.3990 against the dollar, bringing its losses this year to more than 13% after President Recep Tayyip Erdogan said he plans to take greater control of the economy.
Argentina’s peso plunged to a new record low despite hefty central bank interventions in the past few days and policy-makers jacking rates higher in an attempt to stop the peso’s slide.
“US interest rates have stayed firm at the start of the week and the focal point for investors is increasingly switching to EM [emerging markets],” ING analysts said in a note.
“Here the two most exposed G20 countries to higher external borrowing costs, Argentina and Turkey, remain under pressure.”