The dollar is recovering losses against euro on speculation that the Fed may signal a tightening of monetary policy

Having traded strongly against the dollar in the early session, the euro surrendered gains in the afternoon session, pulling the price down sharply to close a $1.4873.

  • Initially, the greenback hit a fresh 14-month low versus the euro after the Beijing-based Financial News revived concern over the status of the dollar, stating that China should raise the amount of yen and euros held in its foreign-exchange reserves.
  • However, the dollar pared its losses after the author of the report said that it was purely a “personal view”.
  • In addition, the issue of diversification has been a topic for quite a while and the impact of the news was short-lived. Analysts noted that investors were particularly short on the dollar already and were cautious about over-selling.
  • In the afternoon, the Chicago Fed announced that its Midwest Manufacturing Index rose 1.0% in September offering more evidence that the US economy is digging itself out of the economic slowdown and lending support to the greenback.
  • The single currency lost further value with the US stock markets opening in the red, which in turn pulled European equities negative, discouraging euro investment.