Tuesday's comments from Bank of England (BoE) Governor Mark Carney cast doubts on the increasing expectations of an injection of monetary stimulus in Europe. This caused the U.S. dollar to dip from its almost eight month against the euro. The U.S. dollar's value relative to the Japanese yen also fell from its three month peak.
Within Governor Carney's statements, he emphasizes the point that the BoE would "undoubtedly" examine sterling silver's increasing weakness during the bank's upcoming rate-setting meeting. This damaged investor confidence that the bank would soon cut interest rates. According to analysts, this also hurt the underlying notion that the European Central Bank (ECB) would soon turn to aggressive quantitative easing.
These comments are contrary to the BoE's September statements which implied interest rates would again be cut if the economy continued down its stagnant path.
According to Kathy Lien, managing director at New York's BK Asset Management firm, the consequential decline in the dollar was most likely the result of traders hedging their short bets against the euro to cover losses, resulting in a quick recovery of the European currency and sterling.
The U.S. dollar index, which compares the currency against a variety of other major currencies, moved up 3.4 percent in October. The increasingly supported notion that the Federal Reserve would clamp down on monetary policy in December, as well as the loose monetary easing policies being implemented in Europe and abroad, are what fueled the U.S. dollar's rising value.
Because of the comments, the dollar index dipped 0.07 percent to 98.687 from its nine month peak of 99.119.
Meanwhile, the euro has risen 0.09 percent against it's greenback counterpart to $1.0890. The dollar's value against the Japanese yen has stood stagnant at 104.17 after approaching a three month high of 104.87 during the early hours of the New York trading session.
Despite the push back, the dollar stood surprisingly strong against the Swiss franc at 0.9943, but has been unable to match its eight month high of 0.9998.
According to Richard Scalone of TJM brokerage in Chicago, "You caught the dollar leaning too long dollars."
The growing expectations that the Federal Reserve will raise interest rates in December remain strong. The dollar's losses would have most likely been larger without these expectations. The updated CME Group's FedWatch tool, which measures policy consensus among traders, shows that investors are 78 percent confident the central bank will raise interest rates in December.