By Joseph Adinolfi, MarketWatch
NEW YORK (MarketWatch) -- The euro fell to an eight-month low
against the dollar Tuesday, its lowest level since the European
Central Bank surprised the market with a 25 basis point rate cut in
November 2013.
While she expects the euro to weaken against the dollar in the
long term, Kathy Lien, managing director of FX Strategy at BK Asset
Management, said she was perplexed by the extent of the euro's fall
on a day when no meaningful euro zone data was released.
"The only explanation for the sell-off in EUR/USD is a technical
one," Lien said. "The currency pair has been in a downtrend and
hovering near 1.35 for the past few days with speculators itching
to test this key support level. Expectations for a weaker PMI and
IFO report may have also contributed to the move but these reports
are not expected until Thursday."
Investors bought the dollar, with some convinced the Federal
Reserve will raise interest rates as early as March. But some
analysts are skeptical about the strength of the rally, noting it
was largely contained to the euro and the pound, with many other
currencies rising against the dollar.
Bond yields, which typically rise in line with currency prices,
were mixed, with the five-year note yield falling 1.5 basis points
to 1.670%.
Wilkinson said falling yields are a sign the dollar rally is not
as well-founded as it might seem.
Jonathan Lewis, chief investment officer at Samson Capital
Advisors, said the ICE dollar index, which measures the dollar's
performance against six other currencies, is skewed to make the
dollar look stronger than it really is, as it's weighed nearly 60%
toward the euro. The index was at 80.7790 Tuesday, up from 80.5600
late Monday.
The euro (EURUSD) was trading at $1.3467 Tuesday, down from
$1.3524 late Monday.
The pound (GBPUSD) was at $1.7060 against the dollar, down from
$1.7072 late Monday.
Among other currencies, the dollar (USDKRW) bought 1024.0300
South Korean won Tuesday, down from 1027.0300 won Monday night. The
Australian dollar (AUDUSD) rose to 93.94 cents, up from 93.65 cents
Monday. The dollar (USDBRL) was also down against the Brazilian
real, trading at 2.2104 real Tuesday, down from 2.2212 real Monday
evening.
The WSJ Dollar Index , a measure of the dollar against a basket
of major currencies, was unchanged at 73.10.
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