Athens - The dollar traded lower versus most of its Group-of-10 peers on position unwinding after the latest US employment report, while the euro attempted to maintain bullish momentum fueled by a more hawkish-than-expected European Central Bank (ECB).
The Bloomberg Dollar Spot Index pared some its losses as traders across Europe noted some intra-day accounts fading the latest dip.
The early drop picked up its tone from last week’s close as investors assessed that market pricing reflected three hikes by the Federal Reserve this year and left dollar-bulls looking for signs from this week’s meeting that four hikes may be a serious option for policy makers.
The euro’s outlook remains constructive even as it failed to sustain gains seen early in the day. The change in the ECB’s tone, together with its consideration to increase interest rates before the completion of its bond-buying program, have wrong footed the market. Investors have been closing euro shorts versus the dollar, the Swiss franc and the yen, sending the common currency higher.
Yet the move’s steepness, with the Euro Bloomberg Index rising by the most in three months, has seen some range-seeking sellers, traders in Europe noted.
Spot action aside, euro sentiment has become less bearish in the options market as well. Risk reversals on the one-year tenor, which largely overlooks noise from political risks across the currency bloc, show that bearish bets have reversed their course since the US elections in November.
They still remain in favour of dollar calls as interest rate differentials matter. On the front-end, bets are close to turning euro-bullish for the first time in four months.
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