Jun 15, 2022 02:48AM ET
By: AnalysisWatch
The euro jumped after the Governing Council announced it would hold an emergency meeting on Wednesday to discuss the recent sell-off in government bond markets, briefly distracting traders ahead of the highly anticipated Fed meeting.
The European single currency rose as much as 0.55% against the dollar to $1.0475 after the meeting was announced, after the spread between the yields of Germany and more indebted southern countries, particularly Italy, rose to the highest in more than two years.
This has weighed on the euro somewhat this week, but I think the Fed could easily undo any support for the euro.
The higher euro meant that the dollar index, which measures the dollar against other major currencies, fell 0.3% to 105.09.
Sterling was little changed at $1.2010, having fallen to a 15-month low of $1.1934 against the dollar the previous day, not helped by the possibility of a new referendum on Scottish independence.
According to the CME's Fedwatch tool, the probability of a 75 basis point rate hike at the Fed meeting is at 95%, up from 3.9% a week ago.
The US dollar had already gained ground in recent months as the Fed raised rates ahead of most other major central banks, and has seen a further bounce in recent weeks as investors seek safe havens amid fears of the economic impact of a rapid tightening in financial conditions.
Higher US interest rates compared to Japan's lowest yields weighed on the yen, which hit a fresh 24-year low of 135.58 per dollar in early trade.
It recovered during the Asian day on volatility in government bond markets, rising to 134.65.
In currency markets, the Australian dollar, often seen as an indicator of risk appetite, was trading at $0.6898, up 0.43% on Wednesday from a one-month low hit the previous day.
The New Zealand dollar was at $0.6221, just below its two-year low of $0.6197 hit overnight.
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