The US dollar hit a one-month low against sterling and euro and steadied against a basket of currencies as expectations that US interest rates will remain very low weighed on the greenback. Central banks beyond the United States seem to be considering winding down programs that have flooded their economies with money now that global growth has improved, putting pressure on the Federal Reserve to follow suit. Sentiment towards the greenback is still downbeat on the prospect of US interest rates staying at exceptionally low levels for longer than those of most other major countries.
The euro rose above $1.50 for the first time since August 2008 as expectations that the Federal Reserve would hold US interest rates very low for some time continued to weigh on the dollar. The single currency fell below 90 pence against sterling for the first time since late September as sterling buying gathered momentum after investors took a positive view of Bank of England policy minutes.
Sterling hit a one-month high against the US dollar, adding to broad gains after investors took Bank of England meeting minutes to suggest that an extension of quantitative easing next month was less likely. The pound rose across the board, keeping the euro near a one-month low as well. The Bank of England minutes shifted the balance of risks in favor of a pause in asset purchases in November, which the pound is reacting positively to.
The Japanese yen slid against the US dollar as talk mounts that the greenback is fast becoming the new funding currency for carry trades, thereby replacing or at least accompanying another low-yielder, the yen. This view is pushing the yen lower against the US dollar.
The Canadian dollar fell against the US dollar as investors overseas got a chance to react to the Bank of Canada warning that a strong domestic currency was undermining economic recovery. A slide in the price of oil, a key Canadian export, toward $78 a barrel given a bigger-than-expected increase in crude oil inventories is also weighing on the loonie.
The Australian dollar stayed below 14-month highs as investors sold the currency to take profit after a strong rally, but its broad upward trend remained intact on expectations of interest rate hikes in the near term. The New Zealand dollar also received a lift after the country's central bank chief Alan Bollard said a strong currency was not necessarily an obstacle to raising the cash rate.
10-Year Treasury Note Yield: 3.406%
Dow Jones Industrial Average: 10,092.04 + 50.71