USD Tumbles on Market Jitters

The dollar was under heavy selling pressure on Tuesday amid a combination of concerns on interest rate differentials and renewed jitters over the possible global reshuffling of dollar-denominated debt. Amid a dearth of US economic data, the greenback tumbled to its lowest level versus the euro in over 2-months at 1.2276 and a 2-week low against the sterling at 1.7576. However, there were several key speeches from Fed board members deemed as dovish by markets.

Richmond Fed President Lacker sounded a dovish tone in his speech, saying that he was not seeing any sign of rising US inflation among the most recent data, with the inflation outlook better than many had anticipated 6 months earlier. He said that the core CPI over the past 12-months was close to his proposed 1.5% target, at 1.8%. Lacker said that both markets and surveys communicate to the Fed that the public expects inflation to remain contained and the Fed’s mandate to maintain low inflation was also widely understood. He was upbeat on the health of the US economy, expecting continued job growth, moderate unemployment rate and further real wage gains.

Dallas Fed President Fisher held to a similar stance in his speech earlier today, saying the US was experiencing robust growth with minimal inflation pressure. He also added that earlier efforts to free global trade have helped the Fed in combating inflation.

The particularly dovish tone prompted traders to reassess global interest rate differentials given the possibility of an ECB rate hike as early as Thursday and fresh signs of the Fed nearing the end of its tightening cycle.

Accordingly, the euro was rewarded with a near 1.3% gain versus the greenback to a two-month high. Meanwhile, US equities lauded the prospect of an end to additional US interest rate hikes, with the Nasdaq closing at 2,345.36, its highest close since February 2001 and the Dow Jones closed up 58.91-pts to 11,203.85.