Dollar sell-off takes euro to 10-week high

The dollar came under sustained pressure across the currency board, taking the euro to a 10-week high against its transatlantic partner as the correction in the bull run resumed.

The euro climbed above $1.13, a level last touched on February 26, representing a gain of 1.5 per cent on the day.

The dollar was also weaker against sterling, despite market expectations that the pound would weaken in the run-up to Thursday's UK election.

Opinion polls are pointing to a vote resulting in political deadlock, but sterling gained 0.5 per cent on the dollar.

The dollar sell-off also benefited commodity countries, the greenback falling by 1.5-2 per cent against Scandinavian currencies, and by 0.5 per cent against the Brazilian real.

The rally in oil prices was one driver working in their favour, after the US reported a surprise drop in crude oil inventories, taking the price of Brent close to $70 a barrel.

Peter Kinsella, senior foreign exchange strategist at Commerzbank, said the trend of a weakening dollar, which has been steadily coming off its mid-March high, was giving a lift to oil prices.

But he expected the dollar sell-off to be shortlived. Mr Kinsella attributed Wednesday's fall to rising European sovereign bond yields, triggered by a wider sell-off in bonds, and the release of another poor set of US data.

A survey from payroll processor ADP, which tracks private sector employment, showed the US economy last month added 169,000, below the expected 200,000.

Its latest figures come ahead of Friday's key test of the state of the US economy, the release of non-farm payrolls, which economists expect to add 230,000.

These two factors were "taking a shine off long dollar growth", Mr Kinsella said. But he believed the correction in the dollar should presage a resumption in dollar support if US data picks up this month.

"It is a very healthy correction, but I don't expect it to last all that long, maybe for another week and a half, and then revert," he added.

A faltering US economy, highlighted on Tuesday in data recording the biggest monthly trade deficit since 2008, has halted the dollar's stellar growth, and pushed back the Federal Reserve's plan for raising interest rates.

But Steven Englander, G10 currency strategist at Citigroup, said the historic trend in US GDP growth is for a shock to net exports in one quarter to be followed by a sharp correction in the opposite direction in the next quarter.

"Bottom line for the dollar is to be careful how negatively you view these erratic import data," said Mr Englander in a note.

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