Fall in confidence hits euro

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The euro pulled back from a one-month high against the dollar on Tuesday after falling French and German sentiment indicators raised concerns over the health of the eurozone economy.

Data showed that French business confidence dropped to its lowest level in two-and-a- half years in May, while German consumer confidence deteriorated.

The move lower in the euro against the dollar spilt over to a broader dollar rally against other currencies as traders covered bets against the greenback.

The dollar also received a boost later in the session after data revealed that US home sales bounced back in April. However, Marc Chandler at Brown Brothers Harriman said in spite of the dollar’s stronger tone, he detected that underlying sentiment towards the currency was deteriorating.

“Many large speculators, while sympathetic to our view that the dollar’s base will broaden out, have grown more concerned as the price of oil continues to scream higher,” he said. “In addition, there is a sense that until the US housing market bottoms, downside risks remain dominant.”

By midday in New York, the euro had fallen 0.3 per cent to $1.5730 against the dollar. The dollar also rose 0.6 per cent to SFr1.0300 against the Swiss franc, 0.4 per cent to $1.9745 against the pound and 0.7 per cent to Y104.10 against the yen.

The yen lost ground elsewhere as stability on global equity markets boosted risk appetite and pushed investors away from the safe-haven of the low-yielding Japanese currency.

The yen fell 0.4 per cent to Y163.75 against the euro, 0.3 per cent to Y205.55 against the pound and 0.7 per cent to Y100.05 against the Australian dollar.

The New Zealand dollar advanced after surveys showed persistent inflation concerns in the country, suggesting that the Reserve Bank of New Zealand would not rush into cutting rates.

A string of weak economic data in recent weeks has increased speculation that the central bank would cut rates, which at 8.25 per cent are among the highest in the industrialised world.

However, analysts said expectations for a near-term cut in rates dropped after surveys from the RBNZ and the National Bank of New Zealand showed inflation expectations had risen above the central bank’s target.

The New Zealand dollar rose 0.4 per cent to a two-week high of $0.7900 against the US dollar and climbed 1.2 per cent to Y82.25 against the yen.

Elsewhere, the South Korean won jumped more than 1 per cent to a one-week high of Won1,034.90 against the dollar on speculation that the country’s central bank had intervened to support the currency.

Traders said that they believed the central bank had bought almost $2bn worth of won as it continued its fight against inflation.

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