NEW YORK: The dollar weakened against major currencies including the euro and yen on Monday as easing concerns about an escalation in the Middle East conflict prompted investors to rotate back into risk assets following last week’s selloff in artificial intelligence-linked stocks.
Sentiment improved after US President Donald Trump said on Sunday he was highly unlikely to order fresh attacks on Iran as long as diplomatic efforts continued. Trump is due to meet Qatar’s Sheikh Mohammed on Monday as efforts to secure an end to the conflict gather pace.
The improved mood in markets also weighed on the safe-haven dollar, while Brent crude futures fell 3.4 percent to USD94.99 a barrel.
The euro was last up 0.57 percent against the dollar at USD1.1204. Against the Japanese yen, the dollar weakened 0.33 percent to 158.01.
“One of the main issues in shorts and trading around the US dollar right now is positioning,” said Enrique Diaz-Alvarez, chief economist at Ebury. “The portion of the market that is actively trading and speculating is very long US dollar, which means it’s difficult for the dollar to rally. We expect the euro to rebound over the medium term because the market is perhaps underestimating the strength of the recovery in the euro zone.”
Sterling rose 0.5 percent to USD1.3415. The dollar index, which measures the currency against six major rivals, dipped 0.37 percent to 101.84.
Wall Street’s main indexes were trading higher on the day, led by the tech-heavy Nasdaq following a brutal selloff last week.
“The market is underestimating a little bit the impact of the midterm elections on the US economy in the sense that AI investment has been a significant part of US economic performance and, at the margin, this big political change in the US will be negative for such an investment,” Diaz-Alvarez said.
US DATA IN VIEW
Investors will be eyeing Tuesday’s US consumer price index data, which is expected to show a monthly rise of 0.3 percent, according to a Reuters poll.
Futures imply around 82 percent odds the US Federal Reserve will raise rates on December 9, higher than a week earlier, according to CME Group’s FedWatch tool. The yield on benchmark US 10-year notes rose 1.07 basis points to 4.87 percent.
The risk-sensitive Australian and New Zealand dollars also rallied. The Aussie rose 0.80 percent to USD0.6912 and New Zealand’s kiwi jumped 1.29 percent to USD0.5616, with traders also weighing the implications of too-close-to-call weekend elections in New Zealand.
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