Photo illustration of U.S. dollar notes displayed in Johannesburg

Dollar plunges against euro on rising European yields, U.S. data

By Sam Forgione

NEW YORK (Reuters) – The U.S. dollar hit its lowest level against the euro since late February on Wednesday after a rise in European yields drove demand for the euro and weak U.S. data supported expectations that the Federal Reserve will delay hiking interest rates.

European yields continued to climb, with 10-year German bund yields hitting their highest levels of the year at 0.6 percent <DE10YT=RR>. The rise alleviated concerns that the yields could hit negative levels after falling to a record low of 0.05 percent last month.

“It’s clearly what’s helping the euro along here,” said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York, on the rise in Bund yields.

The euro rose over 1.5 percent against the greenback and hit $1.13710, its highest level in roughly 10 weeks. The yield gap between U.S. 10-year Treasury yields <US10YT=RR> and their German counterpart <DE10YT=RR> shrank to about 165 basis points, the narrowest since late March, making the euro more attractive to investors chasing yields. [GVD/EUR]

The dollar hit its lowest level against the Swiss franc in over three months at 0.91140 franc. The dollar index, which measures the greenback against a basket of six major currencies, was on track for its biggest one-day decline in nearly seven weeks.

The ADP National Employment Report showed U.S. private employers added 169,000 jobs last month, the fewest since January 2014 and far below economists’ forecasts.

The data, which reinforced expectations that the Fed will hold off raising rates for longer, came ahead of Friday’s U.S. nonfarm payrolls report for April. Economists expect U.S. employers to have added 224,000 jobs last month, according to a Reuters poll. While that would mark a nearly 100,000 increase from the previous month, analysts said markets are bracing for a disappointing number.

“It doesn’t seem that we’re going to get a very strong number on Friday,” said Sireen Harajli, a foreign exchange strategist at Mizuho Corporate Bank in New York. “It absolutely argues for the Fed being more cautious in terms of normalizing policy.”

The dollar index <.DXY> was last down 1 percent at 94.116. The dollar was last down 1.11 percent against the Swiss franc at 0.91600 franc <CHF=EBS>. The dollar hit a nearly one-week low against the Japanese yen of 119.205 yen <JPY=EBS>.

U.S. 10-year Treasuries were last down 14/32 in price to yield 2.23 percent, from a yield of 2.18 percent late Tuesday <US10YT=RR>.

(Reporting by Sam Forgione; Additional reporting by Anirban Nag in London; Editing by Peter Galloway and Chizu Nomiyama)


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