Tokyo: The dollar hit a four-month low against a basket of currencies and a seven-week trough versus the euro on Wednesday, facing renewed selling amid a recovery in risk appetite that has curbed safe-haven buying of dollars.
Traders said the dollar also came under pressure due to an opinion story in the Financial Times that touched on the risk of the United States losing its triple-A credit rating and refocused attention on rising US debt issuance.
While the content of the FT article was unsurprising it helped add to pressure on the dollar, which was already looking vulnerable on technical charts, traders said.
“I think the market overall wanted to test the (dollar’s) downside and the FT story linked well with that trend,” said a trader for a Japanese trust bank.
The recent recovery in risk appetite and falls in dollar funding costs pointed to a decline in market players’ demand for dollars, leaving the US currency vulnerable, said Takahide Nagasaki, chief foreign exchange strategist for Daiwa Securities SMBC.
“Concerns related to dollar funding have receded somewhat, and the focus turned towards topics that are negative for the United States such as the fiscal deficit,” Nagasaki said.
The dollar index, which measures its performance against a basket of six currencies, hit a four-month low of 81.871. After trimming some losses, it was down 0.4% on the day at 82.016.
Last week, the dollar index breached support at the 200-day moving average while the euro broke above a similar moving average against the dollar.
In addition, the dollar breached key support against the yen earlier this week, when it fell below the top of the cloud on daily Ichimoku charts.
The euro hit a seven-week high of $1.3722 on trading platform EBS, and now faces resistance at levels near its March peak of $1.3739. A break above that March high would take the euro to its highest level in four months.
After shedding some gains, the euro was 0.3 percent higher from late US trading on Tuesday at $1.3690.
Reflecting a gradual return in confidence in money markets, the three-month dollar London interbank offered rate (Libor) marked a record low of 0.906% on Tuesday.
The dollar hit a four-month low against the Swiss franc of 1.0977 francs on EBS, with its losses gaining steam due to a flurry of stop-loss selling, and fell 0.3% against the yen to ¥96.14.
Market players said the dollar may be forming a head and shoulders pattern against the yen on technical charts and looked vulnerable, although it could draw some support from the 90-day moving average around ¥95.45.
Talk about the potential for fund repatriation flows from Japanese investors related to redemptions and coupon payments on US Treasuries this week also helped push the dollar lower against the yen, traders said.
The US Treasury Department is due to make $21 billion in coupon payments on Friday as part of flows tied to its quarterly refunding moves. Another $52 billion of coupon securities are due to mature, for a total cash outflow of $73 billion.
The market reaction to the opinion piece in the FT suggests some investors are eyeing the possibility of a further dollar slide, said Tokichi Ito, deputy general manager for the forex team at Trust & Custody Services Bank.
“It made me think that some people may be worried about the potential risks of a sharp fall in the dollar,” Ito said.
But whether the dollar will extend its broad decline in the near term remains unclear, he said. The euro may struggle to break above the peak it hit in March, Ito said, adding that such a move would probably require an additional trigger, such as a further recovery in risk appetite.