Dollar consolidates, yen weakens as risk sentiment improves

Reuters SINGAPORE | Updated on October 17, 2018 Published on October 17, 2018

The dollar was little changed against most of its major peers on Wednesday. File Photo   -  Reuters

Dollar index, US bond yields consolidate

The dollar was little changed against most of its major peers on Wednesday but made gains against the yen as upbeat Wall Street earnings turned global sentiment away from safe haven assets.

The three main Wall Street indexes each rose by more than two per cent as blue-chips delivered strong earnings indicating that the US economic recovery is on track despite the impact of rising interest rates and global trade war tensions.

Data on Tuesday showed that US industrial production increased for a fourth straight month in September, boosted by gains in manufacturing and mining output, but momentum slowed sharply in the third quarter. The dollar index, a gauge of its value against six major peers traded flat at 95.08 on Wednesday.

The greenback gained 0.13 per cent against the Japanese yen on Wednesday, which traded at 112.40 to the dollar. The yen had strengthened over seven out of eight sessions prior to Tuesday and hit a one-month high of 111.61 on Monday.

“The yen has taken Swiss franc's mantle as the safe haven currency of choice,” said Michael McCarthy of CMC markets. “The global meltdown in stocks spurred significant yen gains. The short term outlook for yen is dominated by whether the bounce in sharemarkets over the last 24 hours is a turning point or a pause in a larger sell-off.”

Market participants are awaiting further cues for the dollar's direction with minutes from the Federal Reserve's September meeting due for release on Wednesday. Investors are looking for clues on many how additional interest rate increases are likely this year.

Interest rate futures are pricing in a 77 per cent likelihood that the Federal Reserve will again raise rates at the US central bank's December meeting, according to the CME Group's FedWatch Tool.

The British pound quoted at 1.3187 on Wednesday, after tacking a gain of 0.25 per cent versus the dollar on Tuesday. While cable was supported by stronger than expected labour data on Tuesday, investors are still doubtful that the European Union Summit on Wednesday will yield much progress on the Northern Island border issue. On Wednesday, the euro traded slightly higher at 1.1577. The single currency hit as high as 1.1622 - its highest since Oct 1 - during the previous session, before giving up its gains.

The New Zealand dollar gained 0.1 per cent versus the greenback, trading at 0.6589 on Wednesday. The kiwi clocked a gain of 0.5 percent versus the dollar on Tuesday as domestic inflation picked up stronger than expected. The Australian dollar, often considered a barometer of global risk appetite, traded relatively unchanged at 0.7139. The Aussie has gained marginally against the greenback over the past two trading sessions. It hit a more than two-year low of 0.7039 on Oct. 8.

Gold traded flat at $1,223 per ounce on Wednesday. The yellow metal hit its highest level since July 27 on Monday, hitting an intra-day high of $1,233 per ounce.

Published on October 17, 2018
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