The U.S. dollar pared losses against its main rivals Monday, following stronger-than-expected home sales data and comments by a Federal Reserve official that put the central bank’s December policy meeting back on investors’ minds.
Meanwhile, the euro, which had edged closer to the psychologically important level of $1.20 on optimism over the German economy and hopes for an end to that country’s political stalemate, pared its gains and fell into negative territory.
Where are currencies trading?
The ICE U.S. Dollar Index DXY, -0.04% was 0.2% higher at 92.916, reversing the downtrend from earlier in the session. The WSJ U.S. Dollar Index BUXX, -0.03%which measures the buck against a broader range of currencies, was little changed at 86.41.
They euro EURUSD, +0.0672% slipped and fell below its newly reclaimed level of $1.19 late in the session Monday following the dollar’s resurgence. The shared currency broke through $1.19 for the first time since late September on Friday, and looked to be on track to touch $1.20 earlier on Monday. One euro last bought $1.1898, down compared with $1.1932 late Friday in New York.
Against the Japanese yen USDJPY, +0.09% the greenback fell to a new two-month low earlier in the session. One dollar last bought ¥111.08, down from ¥111.57 on Friday, but off session lows.
The Australian dollar AUDUSD, +0.1052% , which had strengthened Monday on the back of higher prices for iron ore — one of Australia’s biggest commodity exports — also pared its gains as the dollar moved higher. The Aussie last fetched $0.7606, down from $0.7615 late Friday in New York.
The British pound GBPUSD, +0.0901% defended its gains against the buck for much of the session but finally gave in. Sterling slipped to $1.3319 from $1.3332 late Friday. The British currency remains haunted by Brexit headlines, which currently focus on what would happen to the border between the Republic of Ireland and Northern Ireland, which is part of the U.K, following the exit from the EU’s Schengen agreement that allows for open borders between member states.
What is driving the market?
The dollar kicked off the week on a mixed note, but rose on the back of supportive home-sales data and a speech from Dallas Fed President Rob Kaplan in which he spoke out in favor of an interest-rate increase in the near term, among other things. Kaplan, a voting member of the rate-setting Federal Open Market Committee this year, had previously expressed uncertainty about a December rate move.
There are more dollar catalysts on the horizon later in the week that could lend the U.S. currency some support: The Senate’s tax bill is expected to be brought to the floor Thursday; a confirmation hearing for Jerome Powell, President Donald Trump’s nominee to replace Fed Chairwoman Janet Yellen, is set for Tuesday; and gross domestic product and inflation data are due on Wednesday and Thursday, respectively.
Meanwhile, euro investors remain focused on hopes for a breakthrough in the political stalemate in Germany. Angela Merkel’s opposition, the Social Democrats, which initially ruled out the option of a renewed grand coalition with her Christian Democrats, have agreed to hold talks with other parties, which could mean a snap election may not be necessary.
What are strategists saying?
“I don’t think Kaplan’s comments were a game changer,” said Mazen Issa, senior FX strategist at TD Securities, adding that the December rate increase is still expected. “I think the dollar benefited from some repositioning today,” he said.
“The dollar has been very susceptible to headlines recently, both positive and negative,” said Lennon Sweeting, head of corporate trading and chief market strategist at XE.com. “Trump’s tweet earlier today about tax talks going ‘very well’ has made a material impact on how the dollar has traded today. With interest rate potential baked into dollar pricing, I expect we will see volatility on headlines and less reaction to December rate talks.”
“The market needs to see some commitment from the Fed on what its plans are for 2018, we may get a hint of this from Powell tomorrow,” he added
What economic data are coming?
New home sales for October rose to the highest level in a decade at a seasonally adjusted annual rate of 685,000, compared with 667,000 in September.