The U.S. dollar continued clawing back ground lost against its main rivals after North Korea launched a ballistic missile over Japan, while the rally in haven assets such as the Swiss franc and the Japanese yen slowed.
The dollar slumped after Pyongyang launched a missile early Tuesday local time that passed over the northern Japanese island of Hokkaido and landed in the Pacific Ocean. It was the first missile fired over the main islands of Japan since 2009. The ICE U.S. Dollar index DXY, -0.01% hit its lowest point in more than 2 1/2 years, before retracing its losses. The index was flat at 92.2600 in the afternoon in New York.
In other notable moves from earlier in the day, the greenback sank to a one-month low against Switzerlands currency, while the euro jumped through the psychological $1.20 barrier for the first time since January 2015. The dollar also hit its lowest level in nine months against the Japanese yen, before all three currencies retreated again.
Read: Will Japanese yen remain a haven amid North Korea tensions?
Investors are concerned that this may lead to retaliation from not only Japan and South Korea but the U.S., too, especially given the rhetoric [U.S. President] Donald Trump deployed a couple of weeks ago, wrote Fawad Razaqzada, market analyst at Forex.com.
Trump earlier this month in a testy exchange with North Korea pledged to respond to aggressions from Pyongya ng with fire and fury.
The United Nations Security Council was reportedly set to meet late Tuesday to discuss the missile launch. The WSJ Dollar Index BUXX, -0.08% a broader gauge of the dollars performance, fell 0.1% to 85.55.
The sudden rebound by the buck could be attributed to exhaustion, said Boris Schlossberg, managing director of G-10 currency strategy at BK Asset Management. The market was very overstretched against the dollar and U.S. data is nowhere near as bad as market sentiment so we are seeing a major short squeeze as late shorts are trapped, he added.
The move also came as U.S. stocks staged a comeback to end higher. Wall Street tumbled in early action, briefly taking part in a global equity selloff in the wake of the missile launch.
The S&P/Case-Shiller house prices index rose a seasonally adjusted 5.7% in the three monts ending in June, compared with a year ago, matching expectations. Consumer confidence for August rose to 122.9 in August from 120 in the previous month, beating forecasts for a reading of 122.5.
The euro EURUSD, +0.0418% slipped back below $1.20, last fetching $1.1975 after hitting an intraday high of $1.2071. Late Monday, the euro traded at $1.1980. The dollar USDCHF, -0.0523% bought 0.9549 francs, down from 0.9553 late Monday in New York.
See: Heres what propelled the euro above $1.20
The dollar rose to 楼109.81 against the yen USDJPY, +0.00% up from an intraday low of 楼108.27, the lowest since November 2016. On Monday it traded at 楼109.26 late in New York. Meanwhile, the yen-Korean won cross JPYKRW, -0.2704% retreated to 10.2541 won after jumping to an intraday high of 10.3979 won earlier in the session.
The won weakened against the greenback USDKRW, -0.27% with one dollar buying 1125.49 won compared with 1118.46 late on Monday in New York.
Hurricane Harvey is also a drag for the dollar as markets worry it will dent GDP in Q3 and could be enough to temper any calls for another [interest rate] hike, said Wilson. It remains to be seen what the damage is to GDP but if past experience is anything to go on it will not be as significant as perhaps some of these moves indicate and any dollar selling off the back of this may be overdone.
Britains pound GBPUSD, +0.0542% slipped to $1.2924 compared with $1.2933 on Monday in New York.
The sterling trade-weighted index on Tuesday fell 0.4% to 74.50, revisiting levels last seen in November. Thats a reflection of both euro strength & pound softness, said Howard Archer, chief economic adviser to EY ITEM Club in a Twitter post Tuesday.