LONDON, November 16, Reuters -- The euro fell to a new 16 month low against the dollar, while Asian currencies gave up their gains from the dialogue between the U.S. and Chinese presidents.
The dollar index held its highest in 16 months, having rallied since the U.S. inflation data showed consumer prices surged to their highest level since 1990, fuelling speculation that the Federal Reserve may raise interest rates sooner than expected.
The outlook for interest rates is influenced by the U.S. retail sales data due later in the session.
The dollar index was flat against the dollar at $1.1367 at the time of 1238 GMT. Earlier in the session, it dropped to $1.1352, its lowest point since July 2020, extending recent losses on Monday after dovish comments from European Central Bank President Christine Lagarde. Lagarde said that tightening monetary policy to rein inflation could choke off the euro zone's recovery, as comments that were seen as pushing back calls and market bets for tighter policy.
Markets are still believing that the ECB is in a very different position and latitude to the Fed, so that sort of rates-spread argument and concerns about the re-imposition of restrictions across the euro zone are keeping the euro very much on the defensive, said Jeremy Stretch, head of G 10 FX strategy at CIBC.
UniCredit strategists said in a note that even if lower than consensus economic data is released this afternoon in the US, including retail sales and industrial production, we doubt that this will affect the scenario now that selling EUR-USD is favoured. On Monday, Austria imposed a lock down on unvaccinated people, while Germany's parliament is due to vote on stricter measures to deal with surging cases. France, the Netherlands and many countries in Eastern Europe are experiencing a surge in infections.
The fear that the situation could escalate and result in a tighter restrictions on the coming months is hurting sentiment towards European currencies, according to Lee Hardman, MUFG's currency analyst.
In talks that gave Asian currencies a lift overnight, U.S. President Joe Biden and Chinese leader Xi Jinping stressed their responsibility to the world to avoid conflict. As the talks did not seem to lead to a breakthrough, support for riskier currencies ebbed somewhat.
The dollar was at a five-month low against China's offshore currency overnight, at 6.3615, and was down around 0.1% on the day at 1242 GMT, at 6.3877.
The Australian dollar, seen as a liquid proxy for risk appetite, was down 0.1% at $0.73385.
The British pound was up 0.3% against the dollar at $1.3467 after data showed British employers hired more people in October after the government's job protection scheme ended.
The Swedish crown was up around 0.3% against the dollar at 8.789. The Swedish headline inflation hit its fastest pace since 2008 in October, according to the data on Monday.
At its meeting next week, we assume that the Riksbank will call the rise in inflation temporary, said Commerzbank FX and EM analyst You-Na Park-Heger.
The price of cryptocurrencies fell below $60,000 for the first time since Nov 1.