Euro and pound jump, dollar falls as market turns to risk assets

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LONDON, Nov 7 (Reuters) –

The euro and pound rose against the safe-haven US dollar on Monday, buoyed by risky sentiment in markets, with European stocks rising on lingering hopes that China will ease COVID restrictions.

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A survey showed on Monday that investor sentiment in the euro zone improved in November, the first time it rose in three months, reflecting hopes that recent warming temperatures and falling oil prices energy will prevent gas rationing on the continent this winter.

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In the meantime, the pan-European STOXX 600 index rose 0.65%, with traders pointing out that investors are still betting China will ease its coronavirus measures, despite officials saying they plan to maintain the zero-COVID policy, which includes lockdowns, quarantines and rigorous testing. .

Against a basket of currencies, the US dollar index fell 0.5% to 110.53. It had lost almost 2% at the end of last week after reports that China would make substantial changes to its COVID-19 policy in the coming months.

“The risk to sentiment was evident at the end of last week as speculators rushed over reports that China might revise its zero-COVID policy,” Jane Foley, head of FX strategy at Rabobank told Reuters. London.

But on Monday, the offshore yuan fell 0.8% against the dollar to 7.2318 after China said over the weekend it would stick to its “dynamic compensation” approach to COVID-19 cases. 19 as soon as they appeared, giving little indication that he would facilitate his aberrant zero COVID strategy nearly three years into the pandemic.

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“The mixed news flow suggests the potential for volatile conditions, however, we would consider it too early for the dollar to enter a sustained selloff,” Rabobank’s Foley added.

RISK ON

The risk-sensitive Australian and New Zealand dollars fell sharply in Asian trading. , but they recovered with the opening of European markets.

Another risk-sensitive currency, the British pound, reversed earlier losses to trade up 0.6% at $1.1442, while the euro hit its highest level since Oct. 27. It was last up 0.23% at $0.9982.

Investors were also pricing Friday’s U.S. jobs report, which showed companies added more than 261,000 jobs in October and hourly wages continued to rise, evidence of a still-tight labor market. .

But hints of some easing in market conditions, with the jobless rate hitting 3.7%, have fueled hopes that the much-wanted Federal Reserve pivot could loom on the horizon, capping potential gains. for the dollar.

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On Friday, four Fed policymakers also indicated they would still consider a lower interest rate hike at their next policy meeting.

Fed funds futures now show markets pricing a 67% chance of a 50 basis point rate hike at the Fed’s December meeting, with the next key data point being the figures for US inflation on Thursday.

In China, the economic impact of the country’s zero COVID policy was again highlighted in its trade figures released on Monday, which showed exports and imports contracted unexpectedly in October, the first simultaneous recession. since May 2020.

(Reporting by Joice Alves in London; Editing by Ed Osmond and Chizu Nomiyama)

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