US Dollar on a Bearish Spiral as European Currencies Hurriedly Pare Back Losses

The US dollar (USD) resumed its fall against its counterparts on Tuesday as US treasury yields eased on their aggressive rally. This offered a breather to equity markets and gave the pound (GBP) and the euro (EUR) the impetus to push further away from record lows.

The Australian dollar (AUD) came onto the radar today after dropping by almost 1% after the Reserve Bank of Australia (RBA) announced a lighter-than-expected interest rate hike before rebounding and latching on to the broader recovery sentiment in risk assets.

The euro is up by 1.15% at 0.9937 against the dollar at press time, which represents a decent recovery from its two-decade low of 0.9535 recorded last week. Sterling traded up by 0.7% at 1.1401, bouncing off the 1.0359 low. A calmer brutish government bond market on Tuesday also provided some support for the single currency after the recent government tax cut-induced crash.

According to a statement released on October 3, the Bank of England (BoE) is set to purchase long-dated gilts, with the nation’s debt management office, which oversees the bond market, telling Reuters that “the market was resilient.”

US Dollar and Yields Performance a Sign of Approaching Fed Cycle Peak

Commenting on the dollar performance, analysts at MUFG, in a client note, explained: “The pullback by the US dollar has coincided with a sharp correction lower for US yields.” The note further explained that both moves had “brought some much-needed relief for risk assets and high-beta currencies.”

The analysts also noted that the price dynamics witnessed in the dollar and the US yields partially reflected growing comfort by money markets that the US Fed was nearing the end of its quantitative tightening cycle. They added: “Market expectations for the Fed’s terminal policy rate for next year have come down from around 4.75% to 4.39%.”