LONDON The dollar was on a weaker footing on Tuesday, unwinding all of its post-payrolls gains on lingering worries about whether U.S. authorities were comfortable with its recent strength.
Also, with U.S. two-year Treasury yields US2YT=RR having fallen back towards pre-jobs data levels, indications are the rates markets were having a hard time factoring in a Federal Reserve rate hike later this year. As a result, the spread over German two-year Bund yields DE2YT=RR narrowed, all of which kept the dollar under pressure and helped the euro EUR=.
The dollar index, which tracks the greenback against a basket of six major currencies, was down 0.15 percent at 95.157 .DXY.
Against the yen, the dollar was 0.1 percent lower at 124.35 yen JPY=, pulling back from its 13-year high of 125.86 yen hit on Friday after unexpectedly strong U.S. job growth led to increased bets that the Federal Reserve was on course to raise interest rates before year-end.
The dollar’s sell-off started on Monday after a media report quoted an unnamed French official as saying that President Barack Obama was not comfortable with a strong dollar. While the White House issued a swift denial, many investors used the report as an opportunity to pare long dollar positions.
“Regardless of what he may or may not have said in the confidential meetings the press had no access to, in my view the reaction illustrates that the currency market is not yet ready to change over to more dollar strength. Positive U.S. data or not,” said Lutz Karpowitz, currency strategist at Commerzbank.
A number of analysts said dollar strength was a hot topic for discussion amongst policymakers in the U.S., and that implied the risk of more additional verbal intervention from policymakers.
“From a political standpoint, the downside of a strong dollar is likely unwelcome, and therefore markets are sensitive to comments like this,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank in Tokyo.
The euro was steady at $ 1.1290 EUR=, having risen as high as $ 1.1343, helped by elevated German Bund yields DE10YT=RR and better-than-expected economic data from Germany.
Greece’s ongoing talks to reach an agreement with its lenders continued to make investors wary, and would likely cap the common currency’s rise.
Greek officials met on Monday with EU Economics Commissioner Pierre Moscovici on what reforms Greece must implement to get new loans, but there was no new proposal from Athens which its creditors could consider, an EU official said.
(additional reporting by Lisa Twaronite; Editing by Andrew Heavens)
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