The dollar weakened broadly yesterday ahead of the Federal Reserve’s policy meeting on worries that the US central bank could become more cautious about raising interest rates, while Wall Street stocks rose because the greenback’s fall eased worries about the effect on corporate profits.
Oil prices fell again, down about three per cent on concerns about over-supply, with US crude hitting a six-year low.
The euro, which has lost roughly a quarter of its value against the dollar since mid-2014, rose 0.9 per cent to $1.0595 after earlier hitting its lowest level since January 2003.
Many investors say the weakness in the currency, which suffered its biggest weekly fall since September 2011 last week, has been overdone.
Comments by Italy’s central bank governor that the euro has fallen faster than the European Central Bank expected contributed to the currency's rise on Monday as the European Central Bank launched quantitative easing. The US dollar index which measures the greenback against a basket of currencies, fell 0.8 per cent.
The strength in the dollar “has put a lot of worry on [equity] investors,” said Nick Colas, chief market strategist at brokerage ConvergEx, in New York, noting the currency’s impact on the profits of multinational corporations.
European stocks rose on expectations of a weakened euro with the launch of the ECB’s bond-buying programme.
The pan-European FTSEurofirst 300 index gained one per cent, while Germany’s DAX rose 2.2 per cent to a record high of 12,167.72 before easing slightly. The MSCI International ACWI Price Index was up 0.9 per cent.
The Dow Jones industrial average rose 179.98 points, or 1.01 per cent, to 17,929.29, the S&P 500 gained 20.44 points, or one per cent, to 2,073.84, and the Nasdaq Composite added 41.80 points, or 0.86 per cent, to 4,913.56.
The benchmark 10-year US Treasury note was up 9/32, the yield at 2.0787 per cent.
Investors were looking ahead to the Fed's policy decision tomorrow.“You’re going to have a thin market that's pushed around pretty easily” ahead of the Fed’s commentary, said Joseph Benanti, managing director at Rosenblatt Securities in New York.
Yesterday’s rally is “just a little bit of relief from last week's sell-off”.
US crude dropped 3.3 per cent to $43.35 per barrel on expectations of oversupply. The International Energy Agency said on Friday a global glut of oil is growing and US production shows no sign of slowing. Brent was down three per cent at $53.01.
Gold fell 0.4 per cent, the 10th decline in the past 11 sessions.
Silver was flat while copper dipped 0.1 per cent.