The euro rose against the U.S. dollar on Tuesday following dovish comments from Federal Reserve officials and the prospect of stimulus from the Chinese government.
The euro rose 0.25 percent against the dollar to $1.0595 on Tuesday afternoon. The dollar index, which measures the dollar’s value against a basket of six major currencies, fell about 0.05 percent to 105.90. This figure is below its 11-month high of 107.34 set last week.
The greenback’s broad decline came after Atlanta Fed President Raphael Bostic said the central bank would not need to raise interest rates further. Bostic also assured the American Bankers Association that Fed policy is sufficiently restrictive with no recession expected, despite rate hikes slowing the economy and reducing inflation.
Minneapolis Fed President Neel Kashkari also shared a similar view, saying it was “possible” that further rate hikes would not be necessary.
“With Treasury yields significantly dropping this morning during cash trading and that translating into a more constructive session for European equities, it seems as if F.X. traders are more comfortable in rotating out of the dollar,” said Simon Harvey, head of F.X. analysis at Monex Europe.
“This has likely been supported by news that China is set to increase its fiscal spending, although we think this is merely improving sentiment at the moment as the details are fairly opaque.”
According to Bloomberg, China is considering issuing over 1 trillion yuan ($137.1 billion) in extra sovereign debt to support its ailing economy. Analysts say this action can benefit currencies like the euro, which are more sensitive to global economic growth.
The Australian dollar traded higher against the greenback as the talk of Chinese stimulus re-emerged. Meanwhile, the Canadian dollar initially climbed above 149.00 per U.S. dollar in early New York trading but could not maintain its position above that level and gradually slipped to 148.65. Analysts say it was due to a national holiday and the rise in oil prices.
The Japanese yen and the Swiss franc were other major currencies that weakened against the dollar. The yen was down 0.13 percent to 148.68, while the franc declined by 0.21 percent to 0.9045.
Only the pound was up 0.40 percent at $1.2286 on Tuesday and laid flat at $1.2283 on Wednesday morning local time. It is nudging at three-week highs. It is, however, down 0.1 percent against the euro at 86.40.
Global stocks rise
Global stocks rose slightly as investors awaited the Fed’s latest meeting minutes and U.S. inflation data release. The MSCI All World stock index (.MIWD00000PUS) climbed up 0.2 percent. S&P 500 futures rose 0.13 percent, extending Tuesday’s 0.52 percent gain.
Asian stocks led the gains, with the MSCI Asia index, excluding Japan, rising 1.25 percent after a rally in the U.S. and Europe on Tuesday.
Europe’s STOXX 600 index rose 0.12 percent in early trading on Wednesday local time, extending a 1.96 percent gain from the previous session. Meanwhile, Germany’s DAX index was flat after surging 1.95 percent on Tuesday.
“I’m expecting the market to remain in wait-and-see mode throughout the day because we have the Fed minutes tonight.... and U.S. inflation tomorrow,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.
The upcoming consumer price index is anticipated to reveal a slight slowdown in price growth, dropping from 3.7 percent in August to 3.6 percent in September. It is set for release on Thursday.