Investing.com - The euro rose above $1.16 for the first time since August 2016 on Tuesday as the dollar continued to weaken after Australia’s central bank cut interest rates to record lows, sending the safe haven yen surging higher.
EUR/USD hit highs of 1.1615, the strongest level since August 25 2015 and was last at 1.1590.
The Reserve Bank of Australia cut interest rates to a record low 1.75% overnight, the first rate cut in a year, in a bid to stave off the threat of deflation.
Data last week showed that Australia’s inflation rate saw its largest fall in seven years in the first quarter, fueling speculation over a rate cut.
The move sent the yen surging higher, with USD/JPY slumping to fresh 18-month lows of 105.55.
The dollar fell 4.5% against the yen last week, the worst weekly performance since the 2008 global financial crisis after the Bank of Japan held off from implementing fresh easing measures on Thursday, defying market expectations for further stimulus.
The dollar has fallen 12% against the yen since the start of the year.
The yen has strengthened as investor uneasiness about the weakening global economy and negative-interest-rate policies in Japan and Europe boosted investor appetite for safe haven assets.
The dollar has come under renewed selling pressure since the Federal Reserve kept interest rates on hold last week and indicated that it will stick to a cautious approach on future interest rate increases.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell to 16-month lows of 92.08.
The Australian dollar was sharply lower against the greenback, with AUD/USD down 1.21% at 0.7574.
Elsewhere, sterling retreated from four month highs against the dollar after data showing that U.K. manufacturing activity contracted for the first time in over three years in April.
GBP/USD was last at 1.4680 after rising as high as 1.4769 earlier, the most since January 4.
The Markit U.K. manufacturing purchasing managers’ index fell to 49.2 in April from a downwardly revised reading of 50.7 in March.
It was the first time that the index fell below the 50.0 level separating growth from contraction since March 2013, highlighting concerns over a deepening slowdown in the sector at the start of the second quarter.
In the euro zone, the European Commission said Tuesday that economic growth will be slower than previously anticipated this year and warned that inflation would also remained subdued.
The EC said it expects the euro zone economy to expand 1.6% in 2016, down from its February forecast of 1.7% growth.
Consumer prices should rise just 0.2% this year, well below the 0.5% increase seen in February, the EC said.