The euro rallied half a percent on Thursday as currencies hit hard by recent dollar buying surged higher in a more positive mood for risk-taking.
Analysts said a flood of end of the month buying of dollars on Wednesday ceased with the start of November, supporting the single currency as well as the Australian and New Zealand dollars.
A one percent jump in sterling on reports of a likely EU-UK Brexit deal on financial services added to the dollar’s woes, pulling it off 16-month highs.
The euro rose half a percent to $1.1369 <EUR=>, away from recent lows of $1.1302 and capping three consecutive trading session losses, pressured by weak euro zone data as well as Italian budget worries and Brexit woes.
The dollar index <.DXY>, which measures the greenback’s value versus six major peers moved lower by 0.4 percent to 96.715, easing from a 16-month high of 97.2 hit in the previous session.
The Australian dollar <AUD=>, seen as a barometer of investor sentiment, jumped one percent to $0.7146, helped by data showing the country’s trade surplus swelled to a near two-year peak in September.
Scandinavian currencies like the Swedish <SEK=> and Norwegian crowns <NOK=> also made headway versus the dollar.
“We are doing the opposite from what we were doing yesterday. We’ve got a reasonably risk-friendly market, and with the new month we have some dollar selling,” said Kit Juckes, a strategist at Societe Generale.
The yen <JPY=> was up slightly on the dollar at 112.90. The Japanese currency weakened to a three-week low of 113.38 on Wednesday after the BOJ signalled its intention to maintain its ultra loose monetary policy for some time.
Although monetary divergence between the Fed and BOJ gives the dollar the upper hand versus the yen in the medium term, some analysts believe the yen may actually strengthen in coming months.
“This year the yen’s function as a safe haven currency has been diluted by the higher returns on offer from the dollar,” said Jane Foley, currency strategist at Rabobank in a note.
“However, the risk of a worsening in the U.S.-China trade war, slowing global growth and the potential for slowing US growth and a plateauing of Fed rates suggest that the yen could win back some ground versus the greenback next year.”
The pound <GBP=> gained more than one percent to $1.2910 on reports that Britain had sealed a deal with Brussels on post-Brexit financial services, adding to optimism about the prospects of reaching a wider deal with Brussels. The pound also rallied more than 0.6 percent against the euro <EURGBP=>.
Sterling traders were also preparing for the Bank of England’s (BoE) monetary policy decision later on Thursday.