FX Rate News

The dollar recovered on Friday after dismal U.S. retail sales and major currencies remained range-bound as the market awaited developments in trade talks between Washington and Beijing.

The results of a meeting on Friday between U.S. Treasury Secretary Steve Mnuchin and China’s President Xi Jinping could be important for foreign exchange investors.

Earlier in the week, markets had cheered U.S. President Donald Trump’s upbeat assessment of the talks but a lack of progress since then has bred a risk-off mood causing declines in the Australian dollar, a proxy for China risk.

U.S. tariffs on $200 billion worth of imports from China are scheduled to rise to 25 percent from 10 percent if the two sides do not reach a deal by March 1.

The dollar traded up 0.11 percent at 97.09 against a basket of major currencies. After rising 1.6 percent in February, the dollar fell broadly on Thursday when poor U.S. retail sales suggested a sharp slowdown in economic activity at the end of 2018.

“Calling the next move in the dollar is pretty tough right now. The start of the year saw investors move into under-valued risk assets, but right now the mood is shifting towards one of secular stagnation,” said Chris Turner, head of foreign exchange strategy at ING.

Any negative news flow out of the trade discussions on Friday could push the dollar back up again, given investor demand for safe-haven assets during times of uncertainty, Turner said.

The euro was 0.21 percent lower at $1.1275.

The single currency was headed for a second week of losses and down 1.7 percent year to date thanks to weaker-than-expected euro zone data.

Analysts expect the European Central Bank to keep monetary policy accommodative for the rest of the year, which is likely to keep a lid on the euro.

Elsewhere, sterling rose 0.1 percent at $1.282. It had been broadly flat after British Prime Minister Theresa May suffered a largely symbolic defeat on her Brexit strategy on Thursday.

The United Kingdom is on course to leave the European Union on March 29 without a deal unless Prime Minister Theresa May can persuade the bloc to amend the withdrawal agreement she negotiated with Brussels last year.

The dollar rose against most other currencies on Monday, holding near a six-week high as fresh worries about U.S.-Sino trade tensions and global growth drove appetite for safe-haven assets.

“U.S.-China talks are the big focus for the week and the dollar strength is indicative of the cautious market sentiment right now owing to its safe-haven status,” said Nick Twidale, chief operating officer at Rakuten Securities.

“The Aussie dollar and the euro are at vulnerable levels right now and further dampening in risk sentiment can lead to further downside in these currencies.”

U.S. negotiators will this week press China on longstanding demands that it reform how it treats U.S. companies’ intellectual property in order to seal a trade deal that could prevent tariffs from rising on Chinese imports.

The dollar gained 0.1 percent versus the yen to 109.82. However, traders expect moves in dollar/yen to be small on Monday as Japanese markets remain shut for a public holiday.

The dollar index, a gauge of its value versus six major peers, was marginally higher at 96.64, on track for its eighth straight day of gains.

Trade tensions between the world’s two largest economies have been a major driver of global investor sentiment over the past year. Market confidence took a hit last week when U.S. President Donald Trump said he did not plan to meet with Chinese President Xi Jinping before a March 1 deadline set by the two countries to achieve a trade deal.

Trump has vowed to increase U.S. tariffs on $200 billion worth of Chinese imports to 25 percent from 10 percent currently if the two sides cannot reach a deal by March 2.

The euro was marginally lower versus the greenback at $1.1322 in early Asian trade while the Aussie was 0.15 percent higher at $0.7099, after a disastrous week in which it lost 2.2 percent.

The strength in the dollar has come despite the Federal Reserve taking a dovish stance at its last policy meeting in January. For now, investors are piling into the safety of the greenback due to fears of a sharp global economic slowdown.

The euro came under pressure as core European government debt yields touched their lowest in over two years. The single currency has lost 2.5 percent so far this month.

Benchmark German yields were just 10 basis points away from zero percent.

The European Commission sharply cut on Thursday its forecasts for euro zone economic growth for this year and next with the bloc’s largest economies expected to be held back by global trade tensions and domestic challenges.

Last month, the International Monetary Fund also downgraded its forecasts for global growth.

Elsewhere, sterling was down 0.1 percent at $1.2935. Traders expect the pound to remain volatile amid heightened political uncertainty over the Brexit process.

The dollar held near a two-week high on Friday, as demand for safe-haven assets rose on uncertainties about the path of U.S.-China trade negotiations and broader worries about slowing global growth.

Such concerns were brought to the fore on Thursday after the European Commission sharply cut its forecasts for euro zone economic growth this year and next on expectations the bloc’s largest countries will be held back by global trade tensions and domestic challenges.

Investors’ anxieties about the global economy were also compounded by comments from U.S. President Donald Trump, who said he did not plan to meet with Chinese President Xi Jinping before a March 1 deadline to achieve a trade deal.

“The dollar is being supported by worries over global growth and external factors,” said Sim Moh Siong, currency strategist at Bank of Singapore.

“Markets are waiting to see what policy measures can stabilise growth worldwide…until then, it’s hard to see the dollar weakening.”

The dollar index, a gauge of its value versus six major peers was up by around 0.1 percent at 96.59, sitting just shy of its two-week high.

The index has gained for six straight sessions in a row. This was mainly due to a weaker euro, which has around 58 percent weightage in the index, and came despite the Federal Reserve’s dovish shift on interest rates last week.

The Aussie dollar fell 0.3 percent to $0.7076 in Asian trade as the Reserve Bank of Australia cut its growth forecasts.

The Aussie has shed 2.4 percent of its value so far this week after the central bank signalled a shift from its long-standing tightening bias earlier this week.

But some analysts see limited downside for the Aussie.

“Aussie dollar should find technical support at $0.70 versus the dollar..quite a lot of bad news is priced in already and rising iron-ore prices should also be supportive,” Bank of Singapore’s Sim added.

The euro was marginally lower at $1.1338, on track to post its fifth straight day of losses. The single currency has been stumbling due to weaker-than-expected growth data out of the euro zone and expectations that the European Central Bank will keep monetary policy accommodative this year.

Philip Wee, currency strategist at DBS, thinks it is likely the euro will depreciate below $1.10 this year on Europe’s relatively weaker growth and inflation outlook against that of the United States.

The yen was steady at 109.74. Analysts think Japanese demand for foreign bonds has supported dollar/yen. The greenback gained around 0.8 percent versus the yen over the last week.

Sterling was marginally lower at $1.2950. Traders expect the British pound to remain volatile in the near term due to the uncertainty surrounding Brexit.

The United Kingdom is currently on course to leave the European Union on March 29 without a deal unless British Prime Minister Theresa May can convince the bloc to reopen the divorce agreement she reached in November.

The greenback was 0.1 percent higher versus the Canadian dollar at C$1.3319, on track to post its largest percentage gain since mid-June. Canada is a major producer of commodities, including oil, and the loonie has been under pressure due to falling energy prices.

The Bank of Canada said in January that low oil prices and a weak housing market hurt the economy in the fourth quarter of 2018 and would continue to drag on growth in the first quarter of this year. Traders expect the central bank to keep rates steady at its next policy meeting in March.

The dollar settled near a two-week high versus its rivals on Wednesday as U.S. President Donald Trump’s State of the Union speech failed to surprise currency traders with markets more focused on the near-term outlook for monetary policy.

Both the U.S. Federal Reserve and the European Central Bank have signaled a cautious monetary outlook in recent days with the Fed’s pause proving a relatively bigger surprise for markets.

However, weak data has dogged euro zone policymakers with some officials reluctant to alter guidance on interest rates as a move could tie the hands of the central bank’s next president months before an appointment is made, according to sources.

As a result, the euro has failed to shake itself out of a broad $1.13-1.15 range it has traded within for the last three months.

“Markets are becoming increasingly sensitive to the outlook for monetary policy and any shifts or changes in thinking can trigger large moves,” said Thu Lan Nguyen, a forex strategist at Commerzbank based in Frankfurt.

That shift in policy thinking was evident in the slump of the Australian dollar after its central bank opened the door to a possible rate cut in a remarkable shift from its long-standing tightening bias.

The policy shift stunned investors as only just the previous day the Reserve Bank of Australia steered clear of an easing signal when holding its official cash rate at a record low 1.50 percent for the 30th straight month.

The Australian dollar plunged 1.5 percent to $0.7133, set for its biggest daily drop in a year, and market analysts rushed to change their interest rate forecasts.

In broader currency markets, the dollar consolidated at a two-week high against rivals with investors focused on incoming U.S. data.

In an annual speech on Tuesday outlining his priorities for the coming year, Trump said illegal immigration was a national crisis and reiterated his vow to build a border wall.

The pound remained on the back foot following a slump overnight. The currency was a shade lower at $1.2930 after brushing $1.2923, its lowest since Jan. 22.

Sterling had lost nearly 0.7 percent on Tuesday on a weak Purchasing Managers’ Index data and uncertainty about Brexit talks.

The offshore yuan was headed for its worst daily decline in over five months on Friday after weak economic data out of China damaged risk sentiment and weighed on the Australian dollar.

China’s gloomy factory readings have brought global growth worries to the fore again, which is likely to benefit safe-haven currencies such as the Japanese yen.

“February is starting with a slew of weak manufacturing data across China-sensitive parts of Asia… it’s a reminder that the risk rally in emerging market currencies, and generally, is built on wobbly foundations,” said Societe Generale strategist Kit Juckes. “I expect a risk averse morning and a data-driven afternoon.”

The Australian dollar, a proxy for China risk, was the main victim, falling half a percent to 0.7237 while the dollar is set to end the week in the red, losing 0.6 percent on the day against a basket of major currencies.

Still, broader risk sentiment remained fairly robust after a top U.S. negotiator reported “substantial progress” in two days of high-level talks on trade with China.

Markets are now focusing on U.S. jobs data later on Friday. Analysts note that any weakness in the labor market and a fall in wage inflation would only reinforce the dovish outlook for the dollar this year.

The dollar is widely expected to weaken this year as the Federal Reserve turns more cautious about rate increases.

“The outlook for U.S. assets remains relatively uncompelling and investors should be shopping for value elsewhere,” said Hans Redeker, global head of currency strategy at Morgan Stanley in London.

“A weak U.S. equity market outlook should keep low-yielders such as the yen and the Swedish crown supported,” he added.

On Wednesday, the U.S. central bank held interest rates steady as expected but discarded pledges of “further gradual increases” in interest rates.

The euro was flat at $1.1446 after having fallen 0.3 percent in the last session. The single currency has not managed to gain despite broader dollar weakness as growth and inflation in the euro zone remain weaker than expected.

Sterling, grappling with uncertainty over a deal to avoid a chaotic British exit from the European Union, was flat at $1.3109. Analysts expect the British pound to remain volatile in the coming weeks.

The pound tried to find its footing on Wednesday after sliding on fresh concerns about the possibility of a “no-deal” Brexit, while the dollar eased ahead of the Federal Reserve’s policy decision.

Sterling staggered up 0.2 percent to $1.3091 after suffering a loss of 0.7 percent overnight as lawmakers rejected a proposal to give parliament a path to prevent a potentially chaotic hard exit. Britain is due to leave the EU on March 29.

Last week, the pound hit $1.3218, its highest since mid-October, on hopes that London might avoid a no-deal departure from the European Union.

“It is difficult to tell what’s next for the pound. But the March 29 Brexit deadline will likely be extended, and the focal point is on when and how such an extension is decided upon,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“For now, the focus shifts back to key events with more consequences for the dollar, such as the FOMC (Federal Open Market Committee) meeting, U.S.-China trade talks and the U.S. jobs report,” Ishizuki said.

Later on Wednesday the Fed will end a two-day policy meeting at which it is expected to leave interest rates unchanged, after raising them four times last year.

Markets are closely awaiting the Fed’s policy outlook after recent comments from officials signalled a slower pace of rate increases this year amid mounting uncertainties over the health of the U.S. and global economies and shaky financial markets.

Traders are pricing in only a slight chance of one rate increase for 2019 as a whole, though most economists polled by Reuters last week still expect two, in the second and fourth quarters.

“The Fed is widely expected to stand pat on policy. But the dollar could face pressure if the Fed opts to highlight negative effects of the U.S. government shutdown in its statements,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

Markets were also focused on U.S.-Sino trade talks in Washington on Wednesday and Thursday, while the closely-watched U.S. jobs report will be released on Friday.

Any escalation in the U.S.-China trade war would trigger a sharper downturn in the global economy, according to the Reuters poll last week.

While China has offered to buy more U.S. products, sources say the two sides remain far apart on key structural issues, and Washington has threatened to hike tariffs if no solid progress is made before an early March deadline.

Against the pound the euro was slightly lower at 87.41 pence having surged 0.8 percent on Tuesday.

The single currency was steady at $1.1435 after brushing a two-week high of $1.1450 overnight.

The dollar index against a basket of six major currencies dipped 0.1 percent to 95.732 following a slip to a two-week low of 95.620 overnight after U.S. Treasury yields declined ahead of the Fed’s policy statement.

The greenback edged down 0.1 percent to 109.29 yen, handing back the previous day’s modest gains.

The Australian dollar was up 0.5 percent at $0.7192 , lifted after the country’s consumer prices beat expectations last quarter.

Australia’s consumer price index (CPI) rose 0.5 percent in September-December, surpassing forecasts for a 0.4 percent increase.

A further sharp rise in iron ore prices also boosted the Aussie.

China’s yuan extended its gains and advanced to 6.7135 per dollar in onshore trade, its strongest mid-July 2018.

The yuan has gained more than 2 percent versus the dollar so far in January, helped by optimism over U.S.-China trade negotiations and a dovish-sounding Fed which has curtailed the U.S. currency’s strength.