Bruised dollar hits 1-month low; Lagarde's negative rate hint boosts euro

By Saikat Chatterjee

LONDON (Reuters) - The dollar hit a fresh one-month low on Tuesday as the euro extended gains while a broad selloff in stock markets failed to boost the U.S. currency's safe haven appeal.

Against a basket of its rivals, the dollar fell 0.3% to 101.79, its lowest level since April 26.

The euro, which was the stand-out gainer on Monday after European Central Bank President Christine Lagarde indicated negative interest rates, a euro zone feature for eight years, will most likely be gone by the end of summer, extended gains.

The single currency was up 0.4% at $1.0729 in early London trading as traders cut back some of their short bets after Lagarde said interest rates were likely to be in positive territory by the end of the third quarter.

"Many observers will continue to consider the ECB as being too hesitant, but the fact that a lift-off is now very likely to happen in July and that the ECB seems willing to hike rates further after that is positive for the euro," Commerzbank strategists said in a note.

The euro fell to a January 2017 low at $1.0349 earlier this month but rebounded by 3.6% since that low in seven trading sessions.

The risk-sensitive Aussie dollar dipped 0.41% to $0.70815, while New Zealand's kiwi was 0.46% weaker at $0.6438, a day before the Reserve Bank of New Zealand is widely expected to raise the key rate by half a point.

Stock markets slid with U.S. stock futures down more than 2%.

Trading was volatile with an index of currency market volatility holding firm at 9.6%, not far from a two-year high above 10.5% hit earlier this month.

 

Graphic: euro positions - https://fingfx.thomsonreuters.com/gfx/mkt/jnpwezamkpw/euro%20positions.JPG

 

(Reporting by Saikat Chatterjee; Editing by Emelia Sithole-Matarise)