Dollar to 15-Month Low After Fedspeak, Euro Rises Past $1.1900

(Bloomberg) -- The dollar fell to a fresh 15-month low as the euro accelerated beyond $1.1900 in brisk afternoon trading.

The greenback was on a defensive footing and Treasury yields reversed an early gain after a pair of Federal Reserve speakers expressed caution over further rate hikes. The euro rose against almost all G-10 peers and powered to fresh 30-month highs versus the dollar and the Swiss franc, which resumed a decline that had briefly paused on Tuesday.

• Yields and the dollar fell after St. Louis Fed President James Bullard said he doesn’t support hiking rates further. The greenback extended its drop after Cleveland Fed President Loretta Mester added to the cautious tone by saying she’d lowered her estimate of inflation’s trigger point. The dollar’s losses were pared as Treasury yields rose from session lows
• EUR/USD climbed to a fresh high 1.1910, the highest since Jan. 6, 2015, as USD extended its drop; EUR/CHF rose above 1.1500 and EUR/JPY rose above 131.00 to its highest since February 2016; the euro has gained more than 12% against the dollar this year
• "Today’s move in EUR/USD appears to be largely driven by the EUR rather than USD,” said Erik Nelson, a strategist at Wells Fargo. “In particular, we had two EUR crosses that moved through key levels (EUR/CHF and EUR/JPY), which may have contributed to the EUR/USD move”
• In the bigger picture, “EUR strength has been driven by stronger GDP growth and PMI data pointing to continued growth,” said Sireen Harajli, a strategist at Mizuho Bank in New York. “USD weakness has been driven by softer data releases (especially on inflation) and lack of progress on the policy agenda. There is concern that Congress will fail to pass a clean resolution on raising the debt ceiling in September”
• The dollar was also weighed down by ADP employment data, which showed that the economy added 178k jobs in July, a little below the 190k forecast. The prior month’s reading was revised to 191k from an initial reading of 158k, bringing it close to the June non-farm payroll reading of 222k. Traders will use the ADP data to fine-tune expectations for Friday’s U.S. non-farm payrolls, which are forecast to have increased by 180k in July. While ADP and NFP data correlate well over time, monthly results can vary; Wednesday’s data imply some slight downside risk to the Friday payrolls
• The Swiss franc fell 0.5% vs the dollar and more than 1% to 1.1524 against the shared currency; it lost ground vs a majority of its G-10 peers, resuming a slide that accelerated in late July; the franc has declined more than 4% vs the euro since July 19, the day before the ECB policy decision and press conference where Draghi said that the bank would start discussions on tapering its asset purchase programs in the autumn
• USD/JPY trimmed an early gain to trade at ~110.64 after rising as high as 110.98 while the 10-year Treasury yield rose to its high of the day. USD flows were light in the climb, a trader in New York confirmed, and there were few orders to block the USD’s path higher. Bids are positioned under 109.90 and stops are in place under bids at 109.80, a trader in Asia said. The pair faces technical resistance from its 100-DMA at 111.45 and from the Ichimoku cloud base at 111.10
• GBP/USD was trading at ~1.3224 after trading as high as 1.3251. The BOE is expected to keep rates and policies on hold when it meets, and some analysts are looking for a 6-2 vote in favor of steady rates despite uncertainty on the stance of new MPC member Silvana Tenreyro, who will vote at her first meeting Thursday

--With assistance from Lananh Nguyen and Katherine Greifeld

To contact the reporter on this story: Dennis Pettit in New York at dpettit5@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Greg Chang, Vivien Lou Chen