Reuters – The euro popped above the 1.18 mark for the first time in three weeks on Wednesday as investors resumed buying European equities while the dollar found itself on the back foot for a second day as US bond yields declined.
With the eurozone’s annual economic growth rate outstripping that of the US in the third quarter, led by Germany, markets are increasingly optimistic about the region’s outlook.
“The dollar is getting hit against the euro and the yen and the strong data out of Europe is definitely a factor with some investors bailing out of the long dollar trade,” said Alvin Tan, an FX strategist at Societe Generale in London.
The single currency punched through a key technical level of $1.1734 on Tuesday and extended gains on Wednesday to rise 0.2% at $1.1824 against the dollar.
Over the last few sessions, unhedged purchases of European stocks have picked up noticeably after declining in October.
Despite the rise, some investors remain sceptical about the outlook for the currency, with a Bank of America Merrill Lynch fund manager survey for November pointing out that the percentage of investors saying the euro is overvalued has grown to 12% from 4% in the previous month.
Elsewhere, the Australian dollar was the big mover of the Asian session, skidding 0.6% against its US counterpart to $0.7587, brushing its lowest levels since July.
Data showed Australian wages rose only 0.5% in the third quarter and 2% for the year, falling short of 0.7% and 2.2% respectively and challenging the Reserve Bank of Australia’s view that wages would pick up.
The US dollar was down for the second consecutive session as falling US stocks and declining US bond yields weighed on the greenback.
“Risk sentiment has soured somewhat in the last week or so, as the US equity rally has run out of steam,” said Ray Attrill, Sydney-based global co-head of forex strategy at National Australia Bank.
The US dollar index fell 0.3% to 93.558 on Wednesday as investors awaited US consumer inflation data for October, due later on Wednesday, that is expected to show a marginal increase in consumer prices.