Euro falls as inflation slows, while the dollar rises from a three-month low
On Tuesday, U.S. bond yields and the currency fell following remarks made by Federal Reserve director Christopher Waller that suggested a potential rate drop in the coming months.
In anticipation of a rate decrease by the Federal Reserve shortly, the U.S. dollar saw a modest increase on Wednesday after dropping to its lowest level in over three months. Meanwhile, the euro declined after statistics indicated that European inflation contracted in November.
On Tuesday, U.S. bond yields and the currency fell following remarks made by Federal Reserve director Christopher Waller that suggested a potential rate drop in the coming months.
According to Kyle Rodda, senior financial market analyst at Capital.com, "(Waller's) relatively hawkish, historically speaking, so if his attitude is turning a little bit more dovish, it sort of says that perhaps a general consensus of the board members is that rates have peaked and maybe could be cut next year."
At 102.46 during the Asian trading session, the dollar index—which measures the currency against six peers—reached its lowest point since early August.
After that, it partially recovered and was last up 0.18% at 102.8. November was expected to see the dollar decline by 3.7%, the most in a year.
"Basically, it's a result of the global and American bond rally, especially with the US 10-year Treasury note," stated Alvin Tan, RBC Capital Markets' head of Asia FX strategy.
Tuesday and Wednesday saw a 5 basis point (bps) decline in the yield on the US 10-year Treasury, which brought it down to 4.2898%, the lowest level since mid-September.
Since bond yields and prices are negatively correlated, lower bond yields make fixed income investments in a nation appear less appealing than those of its counterparts, which puts pressure on the local currency.
For the first time since August, the euro briefly surpassed $1.10 on Tuesday; however, it quickly gave up gains and was last down 0.1% at $1.0984.
Germany, the largest economy in Europe, released inflation data indicating that price rise decreased to 2.3% year over year in November from 3% in October. Spain's inflation also dropped precipitously.
"On an intraday basis (the euro) has come off the high... but of course on the flip side U.S. bond yields are continuing to grind lower," Tan stated. "There are two contrasting forces at play here."
Prior to the Fed's preferred gauge of U.S. inflation, the personal consumption expenditures index, or PCE, the euro zone-wide inflation data is scheduled to be released on Thursday.
As a result of the Reserve Bank of New Zealand's Wednesday interest rate decision and warning that additional policy tightening would be necessary, the value of the New Zealand dollar recently traded up 0.34% to $0.6157.
Earlier in the session, the kiwi had jumped over 1% to reach a four-month high of $0.6207.
The Japanese yen, which is especially vulnerable to changes in the yields on US bonds, maintained its recent advances on Wednesday. The dollar had previously dropped to a low of 146.68 yen, more than two months ago. It was up 0.1% at 147.55.
At 7.1246 per dollar at the end of the domestic session, China's onshore yuan closed at its highest level since June 16.