Euro near two-week low vs dollar as Treasury yields rebound
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[August 20, 2019] By
LONDON (Reuters) - The euro hovered near a
two-week low against the dollar on Tuesday as higher Treasury yields the
day before boosted the U.S. currency. Political uncertainty in Italy
also held the euro back.
Yields on U.S. benchmark 10-year government bonds <US10YT=RR> pulled
away from three-year lows on Monday, helped in part by the prospect of
Germany ditching its balanced budget policy and China providing more
economic support measures.
Gains also came after Boston Fed President Eric on Monday criticized
further rate cuts by the Federal Reserve, as well as from a Trump
administration decision to extend a temporary license for Chinese
telecoms producer Huawei, analysts said.
Market focus is likely to shift now to the annual symposium of global
central bankers that begins on Friday at Jackson Hole, Wyoming, but
analysts doubt that will limit demand for dollars.
"Ahead of the Jackson Hole summit later this week, there seems little
reason for the dollar to weaken," said Lee Hardman, currency analyst at
The Treasury yield curve inverted last week, a signal of impending
recession that sent alarms through financial markets. The curve of
two-year and 10-year Treasury yields remained steeper on Tuesday
The dollar index was flat at 98.375 <.DXY> after earlier rising to a
two-and-a-half-week high of 98.40. It reached its 2019 high of 98.932 at
the beginning of the month.
The euro was also flat at $1.1078 <EUR=EBS>, but not far from Friday's
$1.1066 low, amid concern over political developments in Italy. Against
the Swiss franc, the euro was down by 0.2% at 1.0855 <EURCHF=EBS>, near
the two-year low of 1.0836 it reached last week.
In Italy, Prime Minister Giuseppe Conte will address parliament at 1300
GMT on Tuesday to defend his record. He might resign immediately
afterwards, or he might wait for a formal vote to make it clear he is
being unseated by the League. A vote has not been scheduled and there is
widespread uncertainty over how the political turmoil will end.
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U.S. Dollar and Euro notes are seen in this June 22, 2017
illustration photo. REUTERS/Thomas White/Illustration
Deputy Prime Minister Matteo Salvini pulled the plug on the ruling coalition
earlier this month, hoping to trigger early elections that would probably see
him named prime minister.
"The possible success of the no-confidence vote in Italy today could push
euro/dollar toward and even below the psychological 1.1000 level today," said
Chris Turner, head of forex strategy at ING.
Declines are unlikely to persist, he said, "because the negative spillover into
the euro from periods of political uncertainty in Europe has been somewhat
limited over the past year."
Elsewhere, a stronger dollar pushed the offshore Chinese yuan lower, matching a
six-day low of 7.0770. The offshore yuan was last trading neutral at 7.0702 <CNH=EBS>.
The pound was down by 0.5% both against the dollar and the euro, last at $1.2076
<GBP=D3> and at 91.77 pence against the euro <EURGBP=D3>.
British Prime Minister Boris Johnson made new waves by writing to European
Council President Donald Tusk on Monday to propose replacing the Irish backstop
with a commitment to put in place alternative arrangements by the end of a post-Brexit
Johnson will meet both French President Emmanuel Macron and German Chancellor
Angela Merkel during the week and is also planning to meet Irish Prime Minister
Leo Varadkar in September.
(Graphic: DXY index rises towards 2019 high link:
(Reporting by Olga Cotaga; editing by Larry King)
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