US dollar weakens against euro amidst Greek debt talks

03/06/2015 14:56 AST

The US dollar was broadly lower on Wednesday as hopes for progress in Greek debt talks and a huge spike in European yields combined to give the euro its biggest gain in three months.

The dollar index, which measures it against a basket of six major currencies, was down at 95.897 having shed 1.5 per cent on Tuesday in its biggest one-day drop since July 2013.

The euro was enjoying the view at $1.1155, having climbed 2 per cent overnight, while the dollar lapsed back to 124.04 yen and away from a 12-1/2-year peak of 125.070.

CitiFX head G10 strategist, Steven Englander, said the violence of the shift reflected just how much speculators had been long of dollars and short of euros.

"Today's EUR move started as a rates (yields) move and looks now to be a position unwind. We estimate that a third of the EURUSD move is driven by the cha ..

"Today's EUR move started as a rates (yields) move and looks now to be a position unwind. We estimate that a third of the EURUSD move is driven by the change in rates, and 67 per cent by positioning unwinds."

The initial catalyst was EU data showing a surprisingly large increase in headline and core inflation which suggested the European Central Bank's latest easing campaign was gaining traction.

German 10-year Bund yields surged 16 basis points to 0.68 per cent, the biggest jump in about three years, while Spanish, Italian and Portuguese yields hit 2015 highs.

"Investors got nervous as volatility is back in the European bond markets again," said Mari Iwashita, chief market economist at SMBC Friend Securities.

Economic Times