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Euro retreats after breaking through $1.20, dollar ticks up

After earlier breaking through the $1.20 mark for the first time since 2018, the euro dipped on Tuesday afternoon as investors took profits, driving the dollar up from a 28-month low.

The euro has risen, and the dollar fallen, since last week when the Federal Reserve announced it would tolerate periods of higher inflation and focus more on employment going forward.

The shift in policy has encouraged traders to sell the dollar, betting U.S. interest rates would stay low for longer. The chief beneficiary of the sell-off has been the euro, which on Tuesday morning rose to $1.2011 EUR=, its highest since May 2018.

Having broken through that level, the euro then retreated and was last down 0.26% on the day at $1.1905. The fall was attributed by analysts to profit taking as well as to ongoing technical resistance to the $1.20 level.

The reversal Tuesday afternoon is unlikely to change the broader direction of the euro or dollar index. Fed Governor Lael Brainard in a speech Tuesday said the central bank would need to roll out more stimulus to fulfil the Fed’s new promise of stronger job growth and higher inflation.

U.S. Treasury yields fell following the speech as additional stimulus would likely involve more aggressive bond-buying. The dollar typically falls with interest rates as lower yields on U.S. assets discourage foreign investment.

The dollar index =USD was last 0.19% higher at 92.362 after earlier hitting its lowest since April 2018. The dollar is still down roughly 0.55% since Fed Chair Jerome Powell’s speech on Aug. 27.

Elsewhere, the British pound GBP= was roughly flat after reaching its highest since December earlier as the dollar fell. The Chinese yuan CNH= was modestly stronger against the dollar, last up 0.15% in offshore markets to 6.837.

Reference: Reuters