(Updates prices, adds analyst comment)
LONDON/SINGAPORE, Oct 10 (Reuters) – The dollar stalled
and the euro ticked up on Tuesday as investors reacted to a
sharp drop in U.S. bond yields on the back of dovish Federal
Reserve comments, as well as the prospect of stimulus from
China.
Moves were relatively muted as traders waited for more Fed
officials to speak later in the day, as well as minutes from the
last Fed meeting to be released on Wednesday and U.S. inflation
data on Thursday. Investors were also keeping a close eye on the
conflict between Israel and the Palestinian Islamist group
Hamas.
The euro was last up 0.12% against the dollar at
$1.0581. Bloomberg reported that China is weighing the issuance
of at least 1 trillion yuan ($137.1 billion) of additional
sovereign debt for spending to boost its struggling economy,
which analysts said helped currencies such as the euro which are
seen as more exposed to global growth.
The dollar index, which tracks the greenback against
six peers, was last up less than 0.1% at 106.05. It remained
below last week’s 11-month high of 107.34 and traded at roughly
the same position as a week earlier.
U.S. bond yields dropped sharply on Tuesday when trading
reopened following the Columbus Day holiday. The fall in global
borrowing costs helped boost Asian and European stocks.
“With Treasury yields significantly dropping this morning
during cash trading and that translating into a more
constructive session for European equities, it seems as if FX
traders are more comfortable in rotating out of the dollar,”
said Simon Harvey, head of FX analysis at Monex Europe.
“This has likely been supported by news that China is set to
increase its fiscal spending, although we think this is merely
improving sentiment at the moment as the details are fairly
opaque.”
The yen was last lower, with the dollar up 0.38%
at 149.06 yen. Japan’s currency bounced after the Kyodo news
agency reported that the Bank of Japan is considering raising
its forecast for core consumer inflation this year, but then
gave up its gains.
Analysts said the drop in U.S. yields was driven by comments
from two Fed officials on Monday saying that rises in long-term
yields might negate the need for further hikes, and by traders
seeking out safe-haven assets after Palestinian militant group
Hamas’ assault on Israel.
The yield on the 10-year U.S. Treasury, which
moves inversely to the price, was last down 7 basis points at
4.709%. It hit its highest since 2007 last week at 4.887%.
Israel’s shekel was pinned at 3.95 to the dollar,
just off an almost eight-year low hit on Monday, after the
central bank pledged $30 billion to stem the sell-off in the
currency.
“They’re firmly engaged here and I think they want to stop
it from trading at that 4 level,” said Chris Turner, head of
markets at ING.
Israeli officials said on Tuesday that Israel had
re-established control over the Gaza border as it pounded the
enclave with airstrikes.
The Swiss franc, a traditional safe-haven
currency, was last flat, with the dollar trading at 0.9068
francs. Britain’s pound was up 0.1% at $1.2244.
Fed officials Raphael Bostic, Christopher Waller, Neel
Kashkari and Mary Daly are due to speak later on Tuesday.
(Reporting by Harry Robertson in London and Tom Westbrook in
Singapore; Editing by Sam Holmes, Simon Cameron-Moore, Susan
Fenton and Sharon Singleton)
