Dollar Probes Lows On Risk Aversion, Dovish Rate Hike Outlook

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The dollar probed recent lows on Tuesday as risk aversion amid the fall in global equities favored peers such as the yen, with uncertain timing about the Federal Reserve’s interest rate hike further undermining the U.S. currency’s appeal.

The dollar index .DXY was down 0.2 percent at 85.332, well below the four-year high of 86.746 struck earlier this month when a Fed rate hike in the near term seemed more likely.

The dollar crawled up 0.2 percent to 107.095, but remained in close range of a one-month low of 106.76 hit earlier in the session.

The greenback suffered a heavy blow overnight against the safe-haven yen as Wall Street took large hits, with the S&P 500 .SPX sliding to a five-month low.

Weak signals from Germany, the euro zone’s largest economy, and signs of uneven growth in China have contributed to recent global growth concerns.

Global equities slid in the face of these concerns, with the widening Ebola epidemic further undermining risk sentiment.

Federal Reserve officials warned at the weekend that if the global recovery stumbled, it could delay an increase in U.S. interest rates.

“There is some bargain hunting for the dollar but it looks poised to test further lows against the yen for the time being. With U.S. stocks falling this much, risk-off bids for the yen stand out,” said Shinichiro Kadota, chief Japan FX strategist at Barclays Bank in Tokyo.

The dollar also attracted demand when global growth concerns began to sour a while back, but sliding U.S. equities have accentuated the ‘risk-off’ bids for the yen, Kadota said.

The Tokyo financial markets tried to take stock of recent developments after the Japanese markets were closed on Monday for a public holiday.

The euro was steady at $1.2737 EUR= after surging nearly one percent overnight. A rise above $1.2797 would take the common currency to a three-week high.

With Germany’s economic outlook and its potential impact on the Fed’s views on the global economy in recent focus, the currency market will scrutinize Germany’s ZEW sentiment index due later in the session.

The Australian dollar dipped 0.2 percent to $0.8752 AUD=D4 as the region’s equity markets fell and sapped risk aversion.

The Aussie had pulled back from a near-four year low of $0.8652 the previous day, given some respite by stronger-than-expected Chinese trade data.

Source : Reuters

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