Dollar falls against rivals
Euro marks sharpest intra-day rise against the dollar as rising stock prices drive demand for higher-yielding currencies.
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NEW YORK (CNNMoney.com) -- The U.S. dollar fell sharply against the euro and the pound Tuesday as rising stock prices increased investor's appetite for the higher-yielding currencies.
The euro rose 2.5% to buy $1.2972 from $1.2644 late Monday in New York. Earlier, the 15-nation currency jumped more than 3.03% to a session high of $1.3027, marking the sharpest intra-day rise since the euro's inception in 1999.
Britain's pound gained 1.2% to $1.6007 from $1.5899.
Against the yen, the dollar traded at ¥100.29, up 1.2% from ¥99.12. Japan's currency fell nearly 4% against the euro to trade at ¥130.115 from ¥125.303.
The dollar and the yen gained significant ground against the euro and the pound in October as volatile financial markets curbed investor's appetite for risk. But recent advances in global stock markets appear to have boosted demand for more risky assets like high-yielding currencies.
"Risk appetite looks healthier despite some disappointing economic data, suggesting investors remain focused on falling interest rates and the improvement in credit conditions," said Steve Malyon, currency strategist at Scotia Capital in Toronto.
On Wall Street, stocks rallied as lending rates continued to improve in response to efforts of U.S. and world governments to get money flowing again. The Dow Jones industrial average gained 2.8% about two hours into the session.
Tuesday's advance came after Japan's Nikkei index rallied 6.3% overnight. Other Asian markets also closed higher.
European markets posted solid gains for the sixth session in a row. The CAC-40 in Paris was 3.6% higher in afternoon trading. Britain's FTSE was up about 3.5% and the DAX in Frankfurt added 3.7%.
The gains in equity markets come as U.S. voters head to the polls to determine who will be the country's next president.
"Today's U.S. presidential elections comprise a major political event on the financial market front," said Ashraf Laidi, chief currency analyst at CMC Markets in New York.
But this week's string of interest rate decisions from the Bank of England and European Central Bank "are likely to have the last word as far as market impact," Laidi added.
The ECB is expected to cut its benchmark rate by 50 basis points to 3.75% when it meets Thursday. UK policymakers are also expected to cut interest rates by 50 basis points to 4%.
On Tuesday, Australia's central bank cut its benchmark interest rate by a bigger-than-expected, three-quarters of a percentage point. The Bank of Japan lowered rates last Friday.
The Australian dollar surged 3.3% against the dollar to a session high near 70 U.S. cents. The Aussie's strength surprised some analysts since lower interest rates often weigh on a currency.
Interest rates are monetary policymaker's main tool for spurring economic activity. However, currency traders are often wary of lower interest rates because they can boost inflation and undermine the value of a currency. 
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