LONDON/SINGAPORE—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 terrorists group Hamas.
The euro was last up 0.12 percent against the dollar at $1.0581.
The dollar index, which tracks the greenback against six peers, was last up less than 0.1 percent 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.
The yen was last lower, with the dollar up 0.38 percent at 149.06 yen. Japan’s currency bounced, 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 terrorist 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 percent. It hit its highest since 2007 last week at 4.887 percent.
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 percent at $1.2244.
Fed officials Raphael Bostic, Christopher Waller, Neel Kashkari, and Mary Daly are due to speak later on Tuesday.
