CURRENCIES: Dollar Sinks To 10-month Low Against Euro

By Anora Mahmudova, MarketWatch , Rachel Koning Beals Features Dow Jones Newswires

ECB's Draghi hints at early steps away from aggressive stimulus

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The dollar weakened broadly on Tuesday, marking a 10-month low against the euro, which surged as investors weighed what could be a shift away from aggressive eurozone stimulus. Meanwhile, a delay of the health-care bill vote by the U.S. Senate put late-session pressure on the buck.

GOP lawmakers postponed the vote on the health-care bill to overhaul Obamacare, after several Republican senators said they wouldn't vote for the bill in its existing form. The Congressional Budget Office, a nonpartisan entity, reported that the bill would leave 22 million people without health coverage, while costs of premiums and out-of-pocket deductibles would rise.

The ICE Dollar Index , a measure of the currency against a basket of six major rivals, fell 1% to 96.472, with the euro representing the largest weighting in the dollar gauge.

"The failure to pass the bill with enough support in the Senate suggests that the Trump administration is losing political capital that is needed to pass other policies, such as tax reform and infrastructure spending. Currency markets views this as a negative for the dollar," said Alfonso Esparza, senior currency strategist at OANDA.

The dollar continued to weaken as Federal Reserve Chairwoman Janet Yellen gave a speech in London on Tuesday, and answered questions from the audience. Yellen reiterated that rate increase will be gradual and the Fed will avoid destabilizing markets.

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Read:Yellen says another crisis isn't likely in our lifetime: live blog (http://blogs.marketwatch.com/capitolreport/2017/06/27/live-blog-of-janet-yellen-address-in-london/)

Philadelphia Fed President Patrick Harker, also speaking in London, reaffirmed his stance for raising rate one more time this year.

Fed officials' comments come against the backdrop of persistent concerns that inflation is running below the Fed's expectations for a 2% rise.

On data front, U.S. home-price gains pulled back slightly but remained robust early this year, prompting questions about how sustainable such a streak can be. Meanwhile, consumer confidence jumped in June.

The dollar came under early pressure, as the euro surged after European Central Bank President Mario Draghi said in a speech in Portugal on Tuesday that changes to the central bank's accommodative posture may see the ECB move "not in order to tighten the policy stance, but to keep it broadly unchanged." The comments made in Sintra, Portugal, were viewed as being less dovish, or accommodative, than Draghi's earlier speeches by some analysts' accounts, and jolted the euro to the highest level, above $1.13, since August, according to data from WSJ Market Data Group.

"There was a very minor nuanced change in his tone, but it was enough to impact the euro," said Neil Mellor, chief currency strategist at BNY Mellon.

The euro was most recently changing hands at $1.1346, up 1.4% compared with $1.1182 late Monday in New York.

"A lot depends on whether a decline in inflation is indeed temporary, but the biggest risk to taking a positive view of the economy is Italy. Once the ECB stops buying assets, Italy will be on its own and the consequence of that is simply unknown," said Mellor.

In other currencies, the pound was worth $1.2799, up 0.6% compared with $1.2721 late Monday.

The pound has gained to start the week after U.K. Prime Minister Theresa May reached a deal with Northern Ireland's Democratic Unionist Party for its lawmakers to support the Conservatives' minority government (http://www.marketwatch.com/story/uks-dup-reaches-deal-to-support-minority-tory-government-reports-2017-06-26).

Against its Japanese counterpart, the dollar strengthened slightly against the yen, buying Yen112.13, up from Yen111.87 late Monday in New York.

(END) Dow Jones Newswires

June 27, 2017 15:40 ET (19:40 GMT)