The US dollar held on to yesterday’s gains on Tuesday as risk sentiment continued to improve. Asian equities extended their gains following another strong rally in Europe on Monday. China’s main indices were up over 3% on hopes that Chinese authorities will announce fresh stimulus measures.
The yen weakened further as the Bank of Japan’s negative interest rates came into effect on Tuesday. The dollar touched a high of 114.86 yen before easing to 114.37 in late Asian session.
Market confidence was boosted on Monday by comments from ECB President Mario Draghi who was testifying before the European Parliament. Draghi repeated the ECB’s willingness to act if necessary, saying the “ECB is ready to do its part”. The euro fell back below the 1.12 level yesterday and was trading around 1.1160 dollars in Asian session today.
The pound was also weighed down by surprisingly dovish comments by Bank of England MPC member Ian McCafferty, who said the case for a rate hike had become “less compelling”. Sterling was stuck near yesterday’s lows at around 1.4430 dollars.
The New Zealand dollar fell sharply after a quarterly survey by the Reserve Bank of New Zealand showed inflation expectations in the country fell to the lowest on record, raising expectations that the central bank will cut rates again soon. The kiwi briefly fell below the 0.66 level versus the US dollar before rising just above it in late Asian session. Weaker-than-expected retail sales data for the fourth quarter also weighed on the kiwi.
The Australian dollar had a better start to the day though, rising to 0.7166 versus the greenback. The aussie was supported by the minutes of the RBA’s latest policy meeting. The minutes reiterated the view that the RBA would only cut rates if the inflation outlook weakened.
Crude oil prices surged for a second straight day on reports that Russia is holding a meeting with Saudi Arabia and other OPEC members to discuss possible output cuts. US crude futures were up 5.3% in late Asian session to trade at $31 a barrel.
The risk-on sentiment did not benefit gold however, which dropped below $1200 as the dollar made a rebound. The precious metal was last trading around $1195 an ounce.
Coming up later today, UK inflation figures and the German ZEW economic survey, will be the main data to watch out for.
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