Dollar Stuck Near Decade High as Stocks Rally Falters

  • Greenback retreats from strongest in six months versus euro
  • Fed likely shifting focus to markets from data: Yanagiya

The dollar is stuck near a decade high against major counterparts as traders look to stocks as a gauge of risk sentiment to withstand higher U.S. interest rates.

The greenback reached a six-month high against the euro Tuesday as markets price in the possibility of the European Central Bank expanding its stimulus next month ahead of a meeting by the Federal Reserve. The odds of U.S. policy makers increasing rates in December grew after October saw the biggest gain in payrolls this year, shifting market focus to whether risk assets are resilient enough for the first rate increase since June 2006. The dollar has advanced at least 1 percent against all of its 10 developed-nation peers this month.

“The wild card to the otherwise straight road to a rate hike is stock moves,” said Masato Yanagiya, head of foreign-exchange and money trading at Sumitomo Mitsui Banking Corp. in New York. “Tumbling stocks would overhaul the scenario of a Fed rate hike and dollar buying. The Fed may not like stock declines and in that sense, it now depends on markets not data.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major counterparts, slid 0.1 percent to 1,231.06 as of 9:43 a.m. in Tokyo, erasing a 0.1 percent gain on Tuesday, when it touched the highest level in more than a decade.

The U.S. currency declined 0.1 percent to $1.0739 per euro after closing at its strongest level since April 15 on Tuesday. The U.S. currency has gained 2.5 percent against the single currency this month. It was little changed at 123.09 yen.

Stocks Stall

The Standard & Poor’s 500 Index has retreated 1.3 percent from a three-month high reached on Nov. 3. U.K and European stocks are also in limbo amid uncertainty over the timing of interest-rate increases.

Australia’s dollar gained 0. 2 percent to 70.46 U.S. cents.

China’s economic data due later on Wednesday, including retail sales and industrial production, could weigh on the Aussie, according to Elias Haddad, a currency strategist at Commonwealth Bank of Australia in Sydney. China is Australia’s biggest trading partner.

“AUD/USD has scope to edge lower today,” Haddad wrote in a report. “China’s October economic activity data batch will likely remain unimpressive, adding to signs that a sustained improvement in Chinese economic activity remains elusive.”

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