Key Highlights

  • The dollar index fell 0.21% to 101.77 on Tuesday after touching a three-week low near 101.5.
  • Housing starts fell 5.2% to 1.22 million, while pending home sales stand at a record low.
  • A 20-year Japanese government bond auction drew a record bid-to-cover ratio of 5.84, lifting the yen.
  • The index is up 1.33% over the past month and 2.86% over the past year.

Oil and Housing Data Weigh on the Dollar

The US dollar index slipped to a three-week low near 101.5 on Tuesday as falling oil prices and weak housing data weighed on the currency. It later traded at 101.77, down 0.21% on the day. The index is still up 1.33% over the past month and 2.86% over the past year.

Housing starts fell 5.2% to 1.22 million, against a forecast of 1.3 million. Pending home sales sit at a record low. Together, the readings point to strain in a sector sensitive to interest rates.

Fed Calendar Frames the Move

The Federal Reserve raised its benchmark rate by 25 basis points on September 16, to a range of 3.75% to 4%. The next meeting runs October 27 and 28. Markets anticipate a 25 basis point increase in December. In a poll of 100 economists, 94 expect a hold in October and all 100 expect a December hike. The 10-year Treasury yield eased to 5.123% on Tuesday.

The index has retraced about a third of its climb from a September 9 low near 98.60 to an October 14 high just under 103.00. Initial jobless claims are due Thursday, and flash PMI readings follow on Friday.

Euro Rebounds as French Unrest Eases

The euro, which carries a 57.6% weight in the index, rebounded as French unrest eased, rising 0.2% to about USD 1.1234. The common currency has the largest influence on the dollar index, so moves in euro dollar translate directly into the gauge.

The remaining weights are the yen at 13.6%, the pound at 11.9%, the Canadian dollar at 9.1%, the Swedish krona at 4.2% and the Swiss franc at 3.6%. The pound rose 0.4% to about USD 1.3351 on Tuesday. The European Central Bank meets on October 28 and 29, with its deposit rate at 2.50%.

Yen Lifted by Record JGB Demand

The yen rose 0.2% to 158.15 per dollar after a 20-year Japanese government bond auction drew bids worth 5.84 times the amount sold, a record and up from 4.01 at the previous sale. The 20-year yield fell 6 basis points to 3.71%.

A strategist at an asset manager said the result was a sign that sidelined cash is coming back to Japan. The yen has a 13.6% weight in the index, so a firmer currency adds to downward pressure on the gauge. The Bank of Japan meets on October 29 and 30, one day after the Fed decision on October 28. Japan's 20-year yield had touched its highest level since the mid-1990s earlier this month.