Headlines: Dollar declined as investors were cautious on U.S. election outcome
Main news:
- Sterling rose on speculation BOE to keep raising interest rate
- Crude oil slided as U.S. inventories likely to rise
Forex outlook:
The dollar had its biggest drop versus the yen in more than six weeks and slumped against the euro as speculation interest rates will rise faster in Japan and Europe. The dollar fell to 117.39 yen on Tuesday from 118.31, the biggest decline since Sept. 21. The U.S. currency traded at $1.2809 per euro from $1.2724. The dollar fell to six-week lows against the euro in a partly technically-driven sell-off as investors grew cautious about the outcome of U.S. midterm congressional elections. Losses in the dollar may be limited after Fed officials indicated they're prepared to resume interest-rate increases to control inflation. Chicago Fed President Michael Moskow said the central bank may raise interest rates to reduce inflation within a “reasonable period of time.” The U.S. economy will withstand the housing slump and grow at a “moderate” pace with slowing inflation, Cleveland Fed Bank President Sandra Pianalto said.
The pound snapped a three-day losing run against the dollar after a London-based research group, said the Bank of England may need to lift borrowing costs after this week as growth accelerates. Against the dollar, the pound was at $1.9088 from $1.8971. It was also at 67.08 pence per euro from 67.07 pence. The BOE will raise its key interest rate a quarter-point to 5 percent on Nov. 9, according to the forecast. The British Retail Consortium survey showed on Tuesday U.K. retail sales rose in October at the fastest pace in three months, suggesting consumer spending is driving economic growth.
Gold: Gold was little changed on Tuesday, erasing earlier gains after a drop in oil prices reduced the appeal of the precious metal as a hedge against inflation. Investors remained cautious ahead of U.S. midterm elections as dollar weakened. “The dollar weakness is giving some underlying support. The market is nervous and there seems to be a big resistance level at $630. If it fails to reach there two-three times, they will try to push it down,” said a European precious metals trader.
Crude Oil: Crude oil fell on speculation that U.S. inventories rose last week and doubts that the Organization of Petroleum Exporting Countries will make promised output cuts. Crude oil fell 83 cent to $59.19 a barrel. Futures have traded in a range of $56.55 to $61.79 for the past month. Kuwait Oil Minister Ali-Jarrah al-Sabah said it was “too early” to call for another output cut in December. “I think the market is now in balance. Let's sit and wait till the Abuja meeting before talking about another cut,” he said. U.S. crude oil inventory data is due to be released today was likely to show stockpiles rose by a modest 500,000 barrels last week according to the forecast.
