A broad rally in global equities helped ease demand for the dollar as a safe-haven asset, while dovish signals from U.S. Federal Reserve officials added further pressure on the greenback. The euro inched up to $1.1729, sterling rose 0.1% to $1.3552, and the dollar slipped slightly against the Japanese yen to 156.37.
Market analysts noted that the initial rush into the dollar following the weekend’s surprise U.S. capture of Venezuelan President Nicolas Maduro proved short-lived. According to ING FX analyst Francesco Pesole, currency markets showed little lasting reaction less than two days after the event.
“Early Monday’s flight into dollar safety proved very short-lived,” Pesole said, adding that the strong performance of global equities despite geopolitical tensions was the main factor behind the reversal of earlier dollar gains.
Stock markets across the world climbed to record highs, limiting the impact of the geopolitical shock across most asset classes and spilling over into foreign exchange trading. As a result, the dollar index—which tracks the currency against six major peers—fell 0.1% to 98.25, extending losses after snapping a four-day winning streak on Monday.
Risk-sensitive currencies outperformed, with the Australian and New Zealand dollars benefiting from improved investor sentiment. The Aussie rose to a more than one-year high of $0.6739, while the kiwi gained 0.13% to trade at $0.5797.
Adding to the dollar’s weakness was soft U.S. economic data released on Monday, which showed manufacturing activity contracting more sharply than expected and dropping to a 14-month low. Comments from Minneapolis Federal Reserve President Neel Kashkari further weighed on the currency after he warned of a possible rise in unemployment, reinforcing expectations that U.S. interest rates may stay lower for longer.
While expectations for monetary easing ticked up, futures markets still indicate about an 80% probability that the Federal Reserve will keep rates unchanged at its January 27–28 meeting.
Elsewhere, the dollar slipped marginally against the offshore Chinese yuan to 6.983, while it posted modest gains against the Swiss franc, rising 0.08% to 0.7922.