Dollar declines for second day running as FX markets change course

Dollar declines for second day running as FX markets change course

The dollar fell for a second consecutive session on Tuesday, knocked off the 19-month peak it reached on Jan. 28, while risk-sensitive currencies such as the Australian dollar and British pound gained.

After falling nearly 5% in January, world equities started February slightly firmer and currency markets have also changed course.

After hitting a 19-month high last week, the U.S. dollar index fell on Monday. On Tuesday it was down 0.4% on the day at 96.281 by 1223 GMT.

Euro-dollar strengthened, up 0.3% on the day at $1.12705.

The dollar’s downward turn could be due to end-of-month flows that left investors needing to sell dollars in the last week.

The improved risk appetite seen in stock markets may also be playing a role as the dollar is seen as a safe-haven currency.

But there is a view among investors and analysts that, when it comes to the rate hike trajectory in major economies, the euro may be more attractive than previously thought, according to Neil Jones

Meanwhile, the European Central Bank maintains its ultra-loose monetary policy stance and has pushed back against any market expectations for ECB rate hikes this year.

German inflation data on Monday was well above expectations, with consumer prices rising 5.1% year on year in January, compared with 5.7% in December.

“If the euro zone inflation data also surprises on the upside tomorrow, the market might bet on a more hawkish ECB. That means EUR might find further support in the run-up to the (ECB) meeting on Thursday,” Commerzbank (DE:CBKG) FX and EM analyst You-Na Park-Heger wrote in a note to clients.

Elsewhere, the dollar also fell against the Japanese yen, with the pair at 114.635, and it hit a six-day low against the Swiss franc.

The Australian dollar dropped sharply overnight after the Reserve Bank of Australia (RBA) pushed back against expectations for near-term rate hikes until inflation is higher.

But the “risk-on” tone in markets meant that it soon recovered and was up 0.5% on the day at $0.71045 in early European trading.

Britain’s pound was up 0.3% at $1.3488.

In cryptocurrencies, bitcoin was up 0.6% at around $38,714, still far below November’s all-time high of $69,000..

India’s finance minister said the central bank will introduce a digital currency in the next financial year, using blockchain technology.

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