Forex: Dollar dips as European markets return from break

On Tuesday, traders shifted their focus to U.S. inflation data due on Wednesday in search of clues as to how near U.S. rates are to peaking, and the dollar gave back the gains made the day before against the euro and the pound.

As most European markets opened following the lengthy Easter weekend, the euro was up 0.52% at $1.0918 while the pound increased by a comparable amount to $1.2439.

Following strong U.S. labour market data reported on Friday that strengthened the argument for a Federal Reserve rate hike next month and allayed concerns of a more pronounced U.S. economic slowdown, both currencies over the weekend had declined from their early April peaks.

According to Simon Harvey, head of FX analysis at Monex Europe, the restricted liquidity on Friday and Monday due to the majority of European markets being closed had an impact on Tuesday’s swings.

He said that when U.S. Treasury yields increased following the jobs report and European bond markets were closed, algorithms that trade currencies based on the gap between European and American rates may have converted euros into dollars.

The new Governor of the Bank of Japan, Kazuo Ueda, promised to maintain the ultra-easy stimulus settings at his inauguration on Monday, which helped the dollar gain 1.1% on Monday. The dollar then declined versus the Japanese yen, falling 0.4% to 133.03, after rising 1.1% on Monday.

According to the CME’s Fedwatch tool, traders currently predict that the Fed will increase rates by another quarter point on May 3.

The dollar weakened abroad as well, falling 0.6% to 0.9041 against the Swiss franc.

Bitcoin broke free of recent ranges on Monday, reaching a new 10-month high of $30,438 on Tuesday before last trading at $30,140.

For the past three weeks, the value of the digital token had been stuck at about $26,500 and $29,400.

As European markets resume trading, the dollar falls.