The US dollar hit fresh 2018 highs yesterday evening on safe-haven demand amid expectations President Donald Trump will pull out of a key nuclear accord with Iran, while oil prices slumped ahead of news on whether the US will reinstate sanctions on Iran.
United States officials indicated late Monday that Mr Trump would withdraw from the deal but it was unclear on what terms and whether sanctions would be announced.
Brent crude futures dropped 3.1 per cent to $73.82 a barrel, while US West Texas Intermediate (WTI) crude futures were down 3.2 per cent at $68.45.
Equity markets in the US and Europe edged lower, weighed by technology and consumer discretionary stocks, as investors awaited Mr Trump’s decision.
Dollar reflects the incremental economic strength of the US versus Europe
The dollar index, tracking it against a group of six major currencies, has surged about 4.5 per cent in three weeks as hopes were dashed that other major central banks would follow the US Federal Reserve in normalizing monetary policy.
The euro and sterling fell under renewed pressure, the former on prospects of early elections in Italy and the latter as hopes waned of a Bank of England rate increase this week.
“The dollar reflects the incremental economic strength of the US versus Europe and other places,” one informed source said.
“The dollar is somewhat undervalued relative to the euro and the pound but it is very overvalued relative to the Japan yen.”
The euro fell 0.55 per cent against the dollar to $1.1854 , the lowest since December. Against the yen, the dollar gained 0.11 percent to 109.19 per $1.
The Dow Jones Industrial Average fell 49.96 points, or 0.21 per cent, to 24,307.36. The S&P 500 lost 7.53 points, or 0.28 per cent, to 2,665.1 and the Nasdaq Composite dropped 18.77 points, or 0.26 per cent, to 7,246.45.
MSCI’s gauge of global equity markets fell 0.09 per cent while the pan-European FTSEurofirst 300 index lost 0.02 per cent.
Italian government bond yields jumped as the possibility of an early election increased with the largest anti-establishment parties polling strongly.
The Italy/Germany 10-year government bond yield spread hit its widest in three weeks at 128 basis points, while Italian 10-year yields shot up to yield 1.863 per cent.