The dollar fell against the euro and the yen for a second day in Europe after Russia's central bank said it would cut dollar holdings in its currency basket.
Russia raised the share of Europe's single currency to 35 percent from 30 percent, reducing the dollar portion to 65 percent from 70 percent, the central bank said in a statement yesterday on its Web site...
The Russian central bank's basket of currencies against the ruble is part of an effort to make its long-term exchange-rate target consistent with its daily trading, it said.
"The gradual increase'' of euro holdings "is aimed at the further smoothing of intraday volatility of the ruble's exchange rate to the dollar and other foreign currencies significant,'' the central bank said.
Meanwhile positive news from Japan is apparently bolstering the yen:
The yen pushed higher in European morning trade on Tuesday amid hopes that the scourge of deflation may finally be being defeated.
Toshihiko Fukui, the governor of the Bank of Japan, told a Diet committee meeting on Tuesday that economic growth is picking up and annual consumer prices could start rising by the end of the year, ending seven years of deflation.
Sustained positive year-on-year core consumer inflation is one of the three conditions the Bank of Japan has set in order to end its zero interest rate policy, alongside solid economic growth and a lack of signs that deflation could return.
That comes on top of better-than-lately news in the eurozone. From the Financial Times...
A rise in the July purchasing managers’ index (PMI) on Monday provided the latest evidence that the weaker euro and signs of a re-acceleration in global growth are making for a gradual pick-up in the eurozone economy.
The NTC Research eurozone manufacturing PMI for the first time since March edged just above the 50 line that divides growth from shrinkage, rising to 50.8 from 49.9 in June.
The improvement echoes rises from various lead indicators last week, such as a larger-than-expected jump in the closely-watched German Ifo business climate index...
[The data] seem to support the ECB’s expectations of a moderate recovery by year-end,” said Lorenzo Codogno at Bank of America...
... and from FXStreet.com:
Spanish GDP is expected to grow 3.4 pct in the second quarter from a year earlier and 0.9 pct from the first, the Bank of Spain said in its July monthly report...
"Positive employment creation in the last few months have helped back this new acceleration," in Spanish GDP growth, the bank said
According to the FT report, the news has substantially altered expectations about where the European Central Bank is headed in the short term:
Together, these figures have all but dispelled speculation that the European Central Bank might be moved to lower interest rates any time soon in a bid to stimulate growth.
So here's the bottom line from the Bloomberg article:
"Recent moves by central banks in Asia and elsewhere have led to dollar selling and euro buying,'' said Takehiko Jimbo, a foreign-exchange manager in Tokyo at Mitsubishi Trust & Banking Co. "These moves are beginning to cap the dollar's gains.''
If you are interested in speculation about how developments like this might impact U.S. interest rates, Brad Setser has plenty to say.