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Dollar slides as U.S. yields ease; euro, sterling jump

Economy Oct 04, 2022 04:02PM ET
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By Caroline Valetkevitch

NEW YORK (Reuters) - The dollar slid against most major currencies on Tuesday as the yield on the benchmark U.S. 10-year Treasury fell after Australia's central bank surprised investors with a smaller-than-expected interest rate hike, with the euro climbing more than 1%.

The Australian dollar was down 0.2% at $0.6503, dragged down after the move by the Reserve Bank of Australia, which said rates had increased substantially in a short period.

The euro was last up 1.6% at $0.9978, recovering from its 20-year low of $0.9528 on Sept. 26, while sterling shot up 1.2% to $1.1456, off a record low of $1.0327 also hit Sept. 26.

A calmer British government bond market was a relief for the pound after recent government-inspired turmoil. In a statement on Monday, the Bank of England reaffirmed its willingness to buy long-dated gilts and the head of Britain's debt management office, overseeing the bond market, told Reuters in an interview the market was resilient.

The moves in the dollar and yields appear to partially reflect market participants' views on the outlook for rates, some strategists said. Investors are hoping that recent economic growth concerns may be enough to force the Federal Reserve and other central banks to become less aggressive in their fight against inflation. At the same time, stocks were rallying.

"We're seeing a drop in interest rate expectations across the financial markets on the basis of Reserve Bank of Australia's surprise smaller-than-expected hike," said Karl Schamotta, chief market strategist at Corpay in Toronto.

"That has sort of had a canary in the coal mine effect from market participants globally. People are ratcheting down what they expect from the Federal Reserve and other central banks and that's really compelling a drive out of the dollar and into risk sensitive assets."

Also, economic data showed job openings in the United States fell to 10.053 million in August, the most in nearly 2-1/2 years.

"It's a much more-drastic-than-expected drawdown in the number of job openings, and that is what we would expect to see if the Fed were nearing the end of their tightening trajectory," Schamotta said.

The yield on 10-year Treasury notes was down 6.6 basis points to 3.585%.

The Fed's aggressive push to raise rates and the recent steady climb in Treasury yields have helped support the dollar's sharp gains this year.

Investors were still closely watching China's yuan, with Chinese authorities having come out in recent weeks with maneuvers to slow its slide. But on Tuesday, the dollar fell against the offshore yuan. The dollar was last down 0.9% at 7.0383 and hit a session low late of 7.0332.

Elsewhere, the dollar was down 0.4% against the Japanese yen at 144.03 yen, keeping below 145 after briefly popping above that level on Monday for the first time since Japanese authorities intervened to support their currency on Sept. 22.

Japanese finance minister Shunichi Suzuki repeated on Monday that authorities stand ready for "decisive" steps in the foreign exchange market if "sharp and one-sided" yen moves persisted.

Dollar slides as U.S. yields ease; euro, sterling jump
 

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