London - The euro rose against a broadly weaker dollar in Europe on Tuesday, with gyrations on the bond market undermining the broad story of US currency strength that has dominated the past year on foreign exchange markets.
The latest move in a repricing of risk in the bond market, which analysts are still struggling to explain, was a move higher in longer-dated US Treasury yields overnight, and that should benefit the dollar.
But German Bund yields have risen by more and elsewhere there was more positive housing data that helped the Australian dollar higher. That all added up to a 0.4 percent fall in the dollar index. The euro rose around 0.6 percent to $1.1220.
“My feeling is this is all broadly a shake out of positioning,” Rabobank strategist Jane Foley said.
“The market had got itself very long dollars, very short euro and very long bonds. There are some major positions being readjusted and it may take some weeks or even months before we get back on track.”
There was little clarity in the euro's moves after Greece made an early payment to the International Monetary Fund but offered little sign a positive conclusion to its talks with euro zone creditors was nearing.
The single currency fell in early trade in Asia before recovering. More broadly, it has stalled since hitting its highest levels in more than two months last week above $1.13.
“The political risk premium is certainly a factor there, and it's quite volatile there with the markets going back and forth with the negotiations,” RBC Capital Markets' senior currency strategist, Sue Trinh, said.
“We still like the euro directionally lower over the longer term, as a mix of independent euro weakness combined with independent US dollar strength.”
Against the yen, the dollar dipped less than 0.1 percent to 120.005 yen, well above its overnight low of 119.40 and solidly within its ranges held since mid-March.
Both the Australian and New Zealand dollars have benefited from the bond market moves. The premium offered by two-year Australia debt over its US counterpart has widened to 152 basis points, from as little as 112 basis points in March, and that of two-year New Zealand debt has widened to 251 basis points, from 247 basis points on Monday.
The Aussie rose 0.7 percent to $0.7943. The kiwi gained half percent to $0.7369.
Reuters