The greenback fell broadly against major currencies on speculation the Federal Reserve will continue to lower its benchmark interest rate, widening the U.S. yield disadvantage with Europe. Interest-rate futures showed a 98% chance the Fed will lower borrowing costs 0.5% to 2.5% by March 18. Two-year U.S. Treasury notes yielded 113 basis points less than similar-maturity German government debt. The gap reached 139 basis points on Jan. 22, the widest since 2002.
The single currency rallied to 1.4757 versus the dollar after the governor of the Bank of France, Christian Noyer, said there is cause for ‘optimism’ about economic growth in the euro region. The British pound fell from 1.9543 to 1.9452 on active cross selling in sterling especially versus the euro and the Japanese yen and then traded sideways in thin U.S. session. Euro rallied versus the sterling from 0.7503 to 0.7571 whilst sterling tumbled from 211.36 to 208.83 before recovering.
Commodity currencies, including Australian dollar and New Zealand dollar rallied against the U.S. currency from 0.9139 to 0.9238 and from 0.7953 to 0.8023 respectively after the release of RBA meeting minutes in which the central bank board members said that a 50 basis point hike was considered (the RBA increased rates by 25 basis points this month) and that a 'significant further rise in rates could be necessary'. The UBS Bloomberg Constant Maturity Commodity Index surged to an all-time high also supported the commodity currencies. Platinum, soybeans and gasoline touched records, and oil reached $100 per barrel. The minutes of the Reserve Bank of Australia policy meeting on
The greenback rose versus the Canadian dollar from 1.0020 to 1.0178 after reports showed Canada’s wholesale sales declined by 2.9%, more than forecast of a drop of 0.6%, and the annual rate of core inflation slowed.
The Chinese yuan rose to the highest level since the end of the currency's link to the dollar in 2005 after China's inflation accelerated to the fastest in more than 11 years. The yuan closed at 7.1580 per dollar in Shanghai on Tuesday, from 7.1623 yesterday. The currency has climbed almost 2 percent this year.
Wednesday will see the release of Bank of Japan minutes, German PPI, Bank of England MPC vote outcome, U.K. CBI industrial trend, U.S. CPI, housing starts, building permits, real earnings and the FOMC minutes.