Dollar bounces, set for steepest rise in five months even as growth slows

The dollar was poised on Friday for its strongest gain in five months as investors responded positively to a bounce in U.S. Treasury yields and as some of its rivals were hit by dovish signals from their own central banks.

With many currencies on the defensive, the dollar has weathered a decline in benchmark Treasury yields to a 15-month low. Against a basket of key rival currencies, the U.S. currency was a shade higher at 97.217.

The index was on track for a more than one percent rise in March, its best monthly performance since gaining 2.1 percent in October last year. It has risen 1.5 percent from a near two-month low of 95.74 brushed on March 20.

The dollar held strong even as data overnight showed the U.S. economy slowed more than initially thought in the fourth quarter of last year.

U.S. gross domestic product increased at a 2.2 percent annualized rate, the Commerce Department said on Thursday, down from the initial estimate of 2.6 percent.

The euro and sterling have fallen this week as yields affecting the currencies have plunged, Daiwa Securities’ senior currency strategist Yukio Ishizuki said.

“It feels like the impact of the decline in yields in those markets was larger,” Ishizuki said.

“Though U.S. yields have dropped, investors seem to have sold currencies from markets about which they have the biggest worries about the state of the economy. That seems to have lifted the dollar,” he added.

The euro was a tad higher at $1.1228 but remained down about 1.2 percent for the month in the wake of sliding yields and fears of a prolonged economic slowdown hitting the euro zone.

The single currency has also been weighed down by speculation the European Central Bank will introduce a tiered deposit rate, providing a sign that policymakers plan to keep interest rates low for longer.

Sterling licked its wounds on Friday, last trading up 0.2 percent at $1.3065 after sinking more than 1 percent overnight as the prospects for a swift agreement on Brexit faded.

Against the yen, the dollar tacked on a tenth of a percent to 110.77 yen. That put it on track for a 0.5-percent loss against the Japanese currency in March.

On Friday, official data showed Japan’s industrial output rose 1.4 percent in February from the previous month, up for the first time in four months, though that came after a sharp 3.4 percent slump in January.

The country’s jobless rate fell in the same month to 2.3 percent, underscoring a tight labor market despite tepid wage gains and inflation.

Investors will be focused on developments in the U.S.-China trade talks on Friday.

“Investors are hoping for some signs of progress to bolster sentiment, although indications from the U.S. are that this will now be a long process,” said Nick Twidale, chief operating officer at Rakuten Securities Australia.

“Expect more risk off trade conditions if this looks set to be another step in a lengthy process,” he said in a note.

China will sharply expand market access for foreign banks and securities and insurance firms, especially in its financial services sector, Premier Li Keqiang said on Thursday, as U.S. officials arrived in Beijing for trade talks.

Earlier, sources told Reuters that China has made proposals in talks with the United States on a range of issues that go further than it has previously.

Increased risk appetite helped lift the Australian dollar, with the Aussie last advancing a sixth of a percent to $0.7086.

Market participants will also be watching Federal Reserve policymakers scheduled to speak later in the day.

The 10-year U.S. Treasury note yield edged up to 2.405 percent, extending its rise after coming off a 15-month low of 2.340 percent touched overnight.

Dollar edges up as more central banks turn dovish, defies lower bond yields

The dollar edged up on Thursday as many of its peers weakened after more central banks shifted to dovish policy stances amid a deteriorating global economic outlook.

The latest switch came from the Reserve Bank of New Zealand (RBNZ), which stunned markets on Wednesday by saying the next move in rates is likely to be down, joining a growing list of central banks that had turned dovish.

The dollar index against a basket of six major currencies was 0.1 percent higher at 96.879 and headed for its third day of gains.

With many of its peers going on the defensive, the dollar has been able to brush aside a decline by benchmark U.S. Treasury yields to 15-month lows.

“Treasury yields are indeed lower. But this isn’t impacting the dollar very much as Treasury yields are still at attractive levels relative to those in the euro zone and now New Zealand, which has just turned dovish,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

“So it is currencies like the euro, which is being dragged down by negative German yields, and the New Zealand dollar, which are suffering losses and allowing the dollar to rise in turn. ”

The euro was a touch higher at $1.1253. The single currency has still lost 0.45 percent this week with the benchmark 10-year bund yield having fallen to 2-1/2-year low of minus 0.09 percent.

The euro’s upside was limited after European Central Bank President Mario Draghi said a hike in interest rates could be further delayed.

Growth-sensitive currencies have taken a beating recently on rising risks to the global economy, highlighted by the shakeout in U.S. bond yields, which markets have read as a signal of a future recession.

The New Zealand dollar crawled up 0.25 percent to $0.6815, after sliding 1.6 percent the previous day.

The Australian dollar, which often moves in sympathy with the kiwi, added 0.15 percent to $0.7096. The Reserve Bank of Australia last month abandoned its long-held tightening bias and markets there are pricing in a cut this year.

The Aussie had shed nearly 0.7 percent on Wednesday along with the plummeting kiwi.

The pound was flat at $1.3188 after going as low as $1.3143 earlier on Thursday.

Sterling was capped after an offer by British Prime Minister Theresa May to quit to get her European Union divorce deal through parliament failed to win over key opponents of the agreement.

Britain was supposed to leave the bloc on Friday but Brussels agreed last week to put back the divorce date until April 12 to give it a chance to resolve a three-year crisis that has split the country down the middle.

However, it still remains uncertain how, when or even if the United Kingdom will leave the EU.

Daisuke Karakama, chief market economist at Mizuho Bank in Tokyo, said the prospect that Brexit could be scrapped altogether through another referendum is a potential risk that could weigh on the yen.

“A second referendum resulting in ‘remain’ would fuel risk appetite and cause the yen to be sold. The shock from such an outcome could equal that of the first referendum,” Karakama added.

The yen, a perceived safe haven, had rallied hard in June 2016 when Britain chose to leave the EU through a national referendum, causing massive risk aversion in the financial markets.

The yen was 0.3 percent firmer at 110.19 to the dollar amid a slide in Japaneseshares, but it was still some distance away from a six-week peak of 109.70 scaled on Monday.

The 10-year U.S. Treasury note yield slipped to 2.34 percent, its lowest since December 2017, on worries about a global recession and after the RBNZ embraced a dovish tone on interest rates.

New Zealand dollar slides as central bank signals possible rate cut

The New Zealand dollar dropped 1.6 percent on Wednesday after the central bank flagged a possible cut in interest rates, becoming the latest set of policymakers to turn dovish.

The signal also weighed on the Australian dollar, which dropped half a percent.

“The market was taken by surprise by the dovish tone (of the Reserve Bank of New Zealand),” Thu Lan Nguyen, an analyst at Commerzbank said. “Most central banks have turned dovish. Even those that hiked interest rates did it with a very cautious outlook on rates.”

The U.S. Federal Reserve abruptly ended three years of monetary policy tightening last week amid signs of an economic slowdown. The European Central Bank, Reserve Bank of Australia and the Bank of Japan have all turned dovish this year, while China’s central bank began loosening policy in 2018.

The kiwi fell 1.6 percent to below $0.68 after the RBNZ left rates unchanged and said its next move would probably be lower.

The Australian dollar weakened half a percent to $0.71.

Currency markets were quiet elsewhere. The U.S. dollar recovered as Treasury yields came off recent lows. Against a basket of currencies, the dollar index was up 0.1 percent to 96.832.

The euro was little changed at $1.1267. European Central Bank President Mario Draghi said on Wednesday that policymakers could delay a planned interest rate hike again if necessary, but dovishness has already been priced into the single currency, analysts said.

“Bids for the dollar are returning with Treasury yields off their lows, and also because negative views towards the European economy have done no favours for their currency,” said Shin Kadota, senior strategist at Barclays in Tokyo.

The pound edged down 0.15 percent to $1.3185, retracing its earlier gains in the face of the stronger dollar.

Britain’s parliament has taken control of the Brexit process from Prime Minister Theresa May for a day, and lawmakers will on Wednesday vote on different Brexit options, looking for a way to break its deadlock over how to leave the European Union.

The Japanese yen was little changed against the dollar, trading at 110.59 yen.

Euro steadies as surveys hint at economic recovery

The euro steadied on Tuesday after economic surveys showed tentative signs of a recovery in the euro zone economy but warning signs from bond markets continued to unnerve investors.

The euro held around $1.13 and analysts said a stronger-than-forecast German business confidence survey on Monday was buoying the single currency.

But German 10-year bund yields remained below zero and that worried global stock markets despite some steadying on Tuesday.

The euro has remained in a fairly narrow range of $1.12-$1.16 in 2019 despite a marked slowdown in the euro zone economy that has prompted fresh stimulus from the European Central Bank.

“We expect EUR/USD to stabilize around the current level of 1.13 and see a limited downside for the rest of week,” said currency strategists at ING.

The dollar rebounded modestly after global markets recoiled on Monday in the wake of an inversion in the U.S. Treasury yield curve, which has signalled a recession in the past.

Meanwhile the Swiss franc, which tends to strengthen during times of economic and political turmoil, neared a 20-month high versus the euro of 1.12.

Appreciation in the so-called safe-haven franc is being driven by risk aversion as a result of concerns about the global economy and could prompt the Swiss National Bank (SNB) to intervene to weaken the currency.

“In case of a no-deal Brexit the 1.10 level is likely to be reached very quickly again. And in fact we would then expect the SNB to intervene in the markets, preventing a stronger collapse of the EUR-CHF exchange rate,” said Ulrich Leuchtmann, head of forex research at Commerzbank in Frankfurt. “Even franc appreciation to 1.10 against the euro is likely to be annoying enough considering the SNB’s efforts to stabilise inflation in positive territory.”

The franc on Monday was marginally weaker versus the euro at 1.1234.

Sterling was effectively flat at $1.3197 after spending the previous day confined to a narrow range when British lawmakers wrested control of the parliamentary agenda from the government for a day in a highly unusual bid to find a way through the Brexit impasse.

They will now vote on a range of Brexit options on Wednesday, giving parliament a chance to indicate whether it can agree on a deal with closer ties to the European Union.

Yen lifted, dollar undermined by US yield curveball

The yen held near six-week highs against the dollar on Monday as fears of economic recession, fanned by inversion of the U.S. bond yield curve, sapped demand for higher-yield, growth reliant assets and drove investors toward “safe” destinations.

Attention is focused heavily on the state of world growth after the U.S. Federal Reserve turned tail on raising interest rates, lacklustre Chinese data and a danger of a chaotic Brexit that would hit the British and European economies.

With U.S. 10-year yields now almost two basis points below three month yields — a classic recession signal — equities have retreated while the yen and gold prices are up. The yen traded as high as 109.70 against the greenback but eased to trade around flat by 740 GMT.

“The Fed’s pivot has lowered U.S. real rates across the curve. As a result, U.S. fixed income and equity markets may have become less attractive for Japanese investors,” analysts at Goldman Sachs told clients, adding they recommended staying short the dollar versus yen.

As cash rushed into Japanese assets, Japanese 10-year government bond yields plunged to 31-month lows.

Investors have for some time favoured the dollar which has the highest yields in the G10, and last week saw “long” positions on the dollar at a new 2019 high, according to calculations by Reuters and data from the Commodity Futures Trading Commission.

But the dollar slipped versus a basket of currencies to around 96.6.

It enjoyed no benefit from news U.S. Special Counsel Robert Mueller had found no evidence of collusion between Russia and President Donald Trump’s election campaign team.

The euro likewise was flat against the dollar at $1.13080, undermined by Friday’s dire manufacturing PMI figures and trepidation that Germany’s IFO Institute could release a downbeat assessment of Europe’s biggest economy at 0900 GMT.

The currency had risen all the way to $1.14485 last week after the Fed meeting and hopes the euro bloc’s economy was starting to turn the corner.

But despite the growth scare, higher-yield currencies such as the Australianand New Zealand dollars held up reasonably well though the Canadian dollarlanguished near two-week lows.

The British pound lost roughly 0.2 percent against the dollar and euro at the beginning of a week that could decide the fate of Brexit as parliament is expected later on Monday to try and wrest control of the process from the prime minister.

Dollar near two-week low before Fed meeting, yen strengthens

The dollar was on the defensive on Tuesday, weighed by growing expectations the Federal Reserve would adopt a more accommodative policy outlook this week and concerns about slower U.S. economic growth.

The dollar index, which measures the greenback against a basket of six major currencies, dipped 0.1 percent to 96.43, hovering close to a two-week low touched overnight.

The index has lost 1.3 percent after hitting a three-month high of 97.710 on March 7, on views the Fed will strike a dovish tone at its two-day policy meeting due to start later on Tuesday.

Many investors expect the Fed to keep its benchmark overnight interest rate unchanged and stick to its pledge of a “patient” approach to monetary policy.

“Around 30 percent of market participants are expecting a rate cut this year,” said Kumiko Ishikawa, senior analyst at Sony Financial Holdings.

“The focus is on the extent to which the Fed is able to take that into account without shocking the market,” she added.

Fed funds futures last priced in about 30 percent chance of a rate cut in 2019, compared with almost zero percent seen earlier this month.

Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said while the market is expecting more accommodative sentiments from the meeting, equity markets were unlikely to react positively to such a development.

“If the Fed really shows a gloomy outlook for growth and rates, then it’s also a negative for U.S. equities. Then that will be a negative for the dollar,” Yamamoto said.

“There is a high risk that whichever the outcome is, it will push down dollar/yen. ”

As the dollar took a breather, other major currencies advanced by default.

The yen rose 0.2 percent to 111.20 yen per dollar, extending its gains to a third session.

Sterling also gained, rising almost one-fifth of a percent to $1.3274. It had seesawed overnight after the speaker of Britain’s parliament said Prime Minister Theresa May’s Brexit deal could not be voted on again unless a different proposal was submitted.

The Bank of England is expected to leave its interest rate outlook unchanged at a policy meeting on Thursday due to the deep uncertainty over Britain’s decision to leave the European Union.

The euro was slightly higher at $1.1344.

Investors’ focus on Tuesday was also on Germany’s ZEW economic index for March, due for release around 1000 GMT.

The German economy, Europe’s largest, barely avoided recession in the final quarter of last year, as the negative impact from global trade disputes and Brexit weighed on a decade of expansion.

“The ZEW expectation index has been improving for four consecutive months,” said Mizuho’s Yamamoto.

“If another month’s improvement is shown, then I think that will be quite positive for the euro.

Dollar on back foot after soft data fans bets on dovish Fed

The dollar licked its wounds on Monday after soft U.S. data increased bets the Federal Reserve will cut rates later this year while the pound hovered near nine-months high on hopes for a delay in Britain’s exit from the European Union.

The dollar’s index against a basket of six major currencies edged down 0.1 percent to 96.481, after having shed 0.81 percent last week, the biggest loss since late August.

Weaker-than-forecast U.S. economic data on Friday cemented expectations the Fed could strike a dovish stance this week, sending U.S. bond yields down to 10-week lows.

U.S. manufacturing output fell 0.4 percent in February, weakening for a second straight month, while factory activity in New York state was softer than expected this month with an index reading of 3.7.

The 10-year Treasuries yield fell to as low as 2.580 percent, its lowest since Jan. 4, while Fed funds futures priced in about 40 percent chance of a rate cut this year, compared with almost zero percent seen earlier this month.

“The 10-year yield closed below 2.6 percent, for the second time this year after closing below that level only on one day at the beginning of year,” said Chotarto Morita, chief strategist at SMBC Nikko Securities.

“If it stays below that level sustainably, it will be the first time since January 2018, when yields started rising on expectations of accelerating growth and inflation following tax cuts. Yields are slipping back as U.S. economic sentiment is cooling down,” he said.

Against this background, many investors expect the Fed to suggest rates will be on hold in the near future and to unveil a plan to end its balance sheet runoff later this year in its meeting ending on Wednesday.

“The focus is on how dovish the Fed will be. I got the impression that markets have gone a bit too far in expecting rate cuts. There’s a risk such views will be rolled back if the Fed’s dot plots show the board members still expect a rate hike this year,” said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.

As the dollar loses steam, other major currencies rose by default. The euroinched up to $1.1336, flat in early Monday trade having gained 0.86 percent, the biggest weekly gain since late September.

The Australian dollar reacted more, gaining 0.4 percent to a two-week high of $0.7115.

The dollar fetched 111.50 yen, little changed on the day but off Friday’s nine-day high of 111.90.

The British pound stood not far from last week’s nine-month high of $1.3380, supported by relief that a no-deal Brexit will likely be averted. It last stood at $1.3292.

It is not clear if British Prime Minister Theresa May can secure support for her Brexit deal in the parliament, which has twice rejected her offer by a wide margin.

May has only three days to win approval for her deal to leave the European Union if she wants to go to a summit with the bloc’s leaders on Thursday.

May is warning hard-line Brexiteers that unless they approved her Brexit divorce deal, Britain’s exit from the European Union could face a long delay and could involve taking part in the bloc’s parliamentary elections.

Sterling rises after UK lawmakers vote to reject a no-deal Brexit

Sterling rose on Wednesday after U.K. lawmakers rejected the idea of leaving the European Union without a Brexit deal in place.

The pound was up 1.42 percent against the dollar at $1.3257.

Britain’s parliament voted at 3:00 p.m. EST against the risk of a “no-deal” Brexit, 24 hours after a second defeat for Prime Minister Theresa May’s divorce treaty left Britain heading into the unknown.

Investors expected that British lawmakers would resoundingly vote against leaving the European Union in 16 days’ time without a transition agreement.

The vote Wednesday set up a vote for Thursday on delaying Britain’s EU departure, a move that could bolster the pound because investors say it would increase May’s chances of securing a deal or even lead to Brexit being called off altogether if a second referendum is held.

The pound has swung wildly in the last 48 hours between $1.30 and $1.33 and the currency has at junctures been at its most volatile since the June 2016 Brexit referendum.

Earlier, sterling’s gains were spurred earlier by a BBC media report that Attorney General Geoffrey Cox had further legal advice which might help May win over lawmakers to her Brexit deal.

British pound recovers after May’s Brexit defeat, more volatility is expected

The pound edged up on Wednesday after turbulence following the defeat of British Prime Minister Theresa May’s European Union exit deal, but investors braced for more volatility ahead of additional Brexit proceedings.

The British Parliament on Tuesday rejected May’s deal to quit the European Union for a second time, deepening the country’s political crisis days before the planned departure date on March 29.

Lawmakers will now vote later on Wednesday on whether Britain should quit the world’s biggest trading bloc without a deal. If such a “no-deal” exit plan is rejected, another vote will be held on Thursday on whether to extend the March 29 departure date.

“The parliament is likely to reject a ‘no-deal Brexit’ plan, and the March 29 exit date subsequently being extended now looks to be a distinct possibility.

The pound is thus stabilizing on such expectations for now, ” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

“Considering how sensitive the pound is to headlines, we could see the currency gyrate again if the door is opened for an extension of the March 29 exit deadline.”

Sterling was up 0.2 percent at $1.3089 and stuck to a narrow range. The currency had lost 0.65 percent the previous day, when it fluctuated widely between $1.3290 and $1.3005.

“Even if Britain decides to extend the Brexit deadline, the question will shift quickly to the length of the extension it desires and what it plans to accomplish within that period,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

“Without an acceptable plan, Britain might have a difficult time convincing European leaders at the EU summit next week, forcing market participants to reverse their positions on the pound and again exposing the currency to sudden downturns.”

The EU’s 28 government leaders will decide at a March 21-22 summit whether to extend the negotiating period beyond the current exit date on March 29.

The dollar was on the back foot after data on Tuesday showed U.S. consumer prices rose at a slower-than-expected pace, nudging Treasury yields to two-month lows.

The dollar index against a basket of six major currencies was little changed at 96.992 after losing 0.3 percent overnight.

The euro was a touch lower at $1.1283 after rising 0.4 percent the previous day as the greenback sagged on the lacklustre U.S. inflation data.

The dollar inched down 0.1 percent to 111.21 yen, reversing the previous day’s modest gains.

The Australian dollar slipped 0.35 percent to $0.7056 after a gauge of local consumer confidence slumped to its lowest in over a year in March.

Pound surges as UK Prime Minister May secures Brexit assurances

Sterling rallied on Tuesday on speculation that British Prime Minister Theresa May might be closer to securing approval for her Brexit deal after the European Commission agreed to some changes to it ahead of a vote in the British parliament.

The pound jumped as high as $1.3290 as May won legally binding Brexit assurances from the European Union, in a last ditch attempt to sway rebellious British lawmakers who have threatened to vote down her divorce deal.

“The market was sensitive to positive news rather than negative news as it had already priced in very bad scenarios,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

Yamamoto said the likelihood remained low that British lawmakers would now agree to May’s deal in a vote expected later on Tuesday, just over two weeks before Britain’s scheduled March 29 departure from the European Union.

After paring some of its earlier gains, sterling was last trading half a percent higher on the day at $1.3214. It was still up 2.1 percent from a low of $1.2945 at one stage on Monday.

The euro slipped to its lowest on the pound since May 2017 at 84.71 pence, before recovering the losses somewhat. It was last quoted down one-third of a percent at 85.19 pence.

Most other currencies stayed within familiar trading ranges before U.S.February inflation figures due at 1230 GMT.

Market sentiment received a modest boost after data on Monday showed U.S. retail sales rose moderately in January, lifted by an increase in purchases of building materials and discretionary spending.

The dollar index, which measures the greenback against a basket of six rivals, was down 0.2 percent at 97.056 as some investors bought riskier assets.

However, the dollar tacked on 0.2 percent against the Japanese yen to 111.41 yen on the back of the improved appetite for risk.

If May loses the vote on her Brexit deal on Tuesday, she has said lawmakers will get a vote on Wednesday on whether to leave the EU without a deal and, if they reject that, then a vote on whether to ask for a limited delay to Brexit.

At a joint news conference with E.U. Commission head Jean-Claude Juncker late on Monday, May announced three documents aimed at addressing the most contentious part of the exit deal she agreed in November — the Irishbackstop.

“Seeing them together in the same screen is a positive – that there is some hand holding there and working together to move forward,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.

The Irish backstop is an insurance policy aimed at avoiding controls on the sensitive border between the British province of Northern Ireland and EU member Ireland.

“If they can break (the backstop) down to a level where there can be some negotiation or at least compromise on both sides, there definitely does seem (to be) light at the end of the tunnel,” added Wakabayashi.

The euro, which has struggled recently in line with a sputtering euro zone economy, found a measure of support on the improved sentiment and the Brexit news.

The single currency was last up 0.1 percent at $1.1259, extending recent gains to a third session.