- Euro touches the highest level since May 2018.
- Fed’s inflation accommodation hurts the dollar.
- China’s Yuan posts 15-month highs.
The euro traded above 1.20 dollars on Tuesday and the US dollar suffered another sell-off to touch multi-year lows as market participants saw little incentive to hold dollar after the Fed’s inflation accommodation shift last week. The European common currency traded above the critical level for the first time since 2018 and touched a 28-month high, but slipped a bit after that.
The US interest rates would stay lower for longer than earlier anticipated as the Fed indicated last week its readiness to tolerate periods of higher inflation than the targetted two Percent. The US-dollar bears stepped on the selling as bulls were left with no immediate reason to support the dollar.
The biggest beneficiary from the greenback stampede was the euro, which has been in a strong up-trend since the European Union passed a landmark 750 billion euro package to support the struggling member nation economies. The common currency has gained 3.7 Percent since the announcement in July.
The US interest rates staying low means there wouldn’t be any interest rate incentive to hold the dollar, and this would typically discourage foreign investment. The dollar bearishness pushed its index against a basket of currencies to the lowest level since April 2018 and was down 0.10 Percent at 92.092.
Added to the Fed policy, the US presidential elections and the fears about the economic recovery also weigh on the haven-linked currency.
The impasse in the congress which stalled the discussion regarding the much needed fiscal stimulus package for the coronavirus battered economy is seen as weakening the US position compared to the swift joint action from the European Union. EU, as we discussed earlier, decided to sell bonds collectively rather than as individual nations.
Elsewhere, Chinese Yuan moved up strongly against the US dollar. The greenback was down 0.26 Percent against the yuan to trade at 6.830. It is the most substantial level for the Chinese currency since May 2019, brushing off diplomatic tensions over Taiwan.
