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Euro headed for second weekly loss after ECB’s warning

The euro was headed for a second weekly decline on Friday after the head of the European Central Bank said economic growth was likely to be weaker than previously expected.

ECB President Mario Draghi blamed factors ranging from China’s slowdown to Brexit for the slowdown. The central bank left the bloc’s interest rates unchanged on Thursday.

The euro, which has traded in a range of $1.12 to $1.16 for the past three months, weakened as investors questioned whether the ECB would be able to raise interest rates this year, as its current guidance indicates.

Analysts expect the euro to underperform in the near term as monetary policy is expected to remain accommodative this year.

“Should the economy not recover, the market is likely to completely price out a normalisation of interest rates in the foreseeable future, which would pressure the euro,” said Zhou Hao, an analyst at Commerzbank.

But he added that if a rate increase was completely priced out, little room would be left to the downside, “so the single currency’s depreciation potential would be limited”.

The euro was broadly flat on Friday at $1.1327, close to Thursday’s two-month low of $1.1289.

Sterling reached an 11-week high on Friday after a report that Northern Ireland’s Democratic Unionist Party had privately decided to offer conditional backing for Prime Minister Theresa May’s Brexit deal next week.

The Sun report pushed the pound 0.4 percent higher to $1.3114, its highest since Nov. 8. Sterling pound has risen about 1.8 percent this week, moving above $1.30 to the dollar on hopes Britain will avoid a no-deal Brexit on March 29.

The dollar index, a gauge of its value versus six other major currencies, fell 0.2 percent to 96.41.

The dollar is facing a tough year as growth at home and globally comes under pressure and the Federal Reserve moves closer to pausing its rate-hike cycle.

Interest rate futures are pricing in no rate change by the Fed through 2019, a turnaround from the four increases it last year in a major boost to the dollar.

Euro falls as markets prepare for cautious ECB

The euro fell on Thursday ahead of a European Central Bank meeting in which policymakers may express caution about slowing economic growth.

The ECB is expected to reaffirm its plan to raise interest rates by the end of the year but traders will focus on how explicitly, if at all, the central bank acknowledges the slow-down.

The euro has lost around 1.6 percent of its value over the last two weeks as investors bet the ECB will keep monetary policy accommodative for an extended period.

If recent weaker-than-expected economic activity in Germany and France leads ECB President Mario Draghi to point to a potentially longer lasting slowdown, that could hurt the euro.

“We see a risk of modest dovish bias from Draghi today given the long stream of the soft euro zone data and look for the euro to test $1.1310,” said ING FX strategist Petr Krpata.

At 0830 the euro was down 0.2 percent at $1.1355.

Germany, France and Italy, the euro zone’s biggest economies, barely grew in the fourth quarter and French business activity fell unexpectedly this month, a survey showed on Thursday.

The ECB holds its first meeting of the year at a time when concerns are also growing about global trade tensions and Brexit.

Sterling traded marginally lower at $1.3043, hovering near highs last seen in mid-November in a sign traders expect Britain to avoid a chaotic exit from the European Union.

Some analysts expect limited upside for sterling. Philip Wee, currency strategist at DBS says that most of the gains in the pound are due to the unwinding of short positions. He sees sterling capped in the range of $1.3170-1.3240.

Since Prime Minister Theresa May’s divorce deal with the EU was rejected by lawmakers last week, lawmakers have been trying to plot a course out of the crisis but no option has the majority support of parliament.

The dollar index, a gauge of its value versus six major peers, was steady at 96.06.

The greenback remains hamstrung versus its rivals, restrained by concerns over global growth, the U.S. government shutdown and a yet-unresolved U.S.-Sino trade dispute.

The Aussie dollar was a big mover in the Asian session, trading half a percent lower at $0.7104 after National Australia Bank said it would raise mortgage rates by 12 to 16 basis points. Earlier, the Aussie was in positive terrain on the back of solid jobs data.

Dollar near three-week high after IMF cuts growth forecasts

The dollar held at a near three-week high on Tuesday as investors sought the relative safety of the U.S. currency after the International Monetary Fund cut its forecasts for the world economy in 2019 and 2020.

The dollar has been considered a consensus short trade since the end of 2018 on concerns that the U.S. Federal Reserve will pause in its interest rate increases. But it has been boosted in recent days by lack of growth in other regions, notably Europe.

“We still think the dollar’s gains may be overdone and the European Central Bank might offer some guidance later this week on when it will start to tighten monetary policy,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

Market watchers say the dollar may also come under pressure as the U.S. government shutdown begins to weigh on domestic growth.

Morgan Stanley strategists believe that U.S. growth in the first quarter is likely to fall below their forecast of an annual 2.2 percent, about half the 4.2 percent growth in 2018.

The IMF cut its growth forecasts for 2019 and 2020 because of weakness in Europe and some emerging markets. It also said failure to resolve trade tensions could further destabilise the global economy.

On Monday, the dollar rose to 96.472, its highest level since Jan. 4 and up more than 1.5 percent from a three-month low earlier this month.

The euro struggled near a three-week low of $1.1361, down nearly 2 percent over the past two weeks from near $1.16 levels.

The dollar strengthened 0.3 percent versus the offshore yuan to 6.8157. It has gained around 1 percent over the offshore yuan in the past seven sessions.

The yen, another safe-haven currency, was steady against the dollar, fetching 109.64 in early trade. The Bank of Japan is expected to leave policy unchanged at its Jan. 22-23 meeting. Analysts expect monetary policy to remain accommodative in Japan this year.

“The slowing global economy and depressed oil prices are expected to force the BoJ to revise down its outlook for economic growth and inflation,” said Osamu Takashima, currency strategist at Citibank in a note.

FOREX-Dollar firm after Chinese growth hits 28-year low

The dollar held near a two-week high on Monday, shrugging off concerns about weakening global growth and data showing China’s economy slowed sharply in 2018.

The greenback has enjoyed its first weekly gain since mid-December, buoyed by hopes for a thaw in U.S.-China trade tensions and stronger-than-expected U.S. industrial production numbers.

Going into 2019, weakness in the dollar was a consensus view among currency market traders. The bet was that the U.S. central bank would stop raising interest rates and the economy would slow after a fiscal boost last year.

The dollar index, which measures its strength against a group of six major currencies, on Monday was steady at 96.308 .DXY after climbing to 96.260 percent on Friday, its strongest since Jan. 4.

“The U.S. dollar is currently benefitting from its role as safe currency haven,” said Esther Maria Reichelt, an FX strategist at Commerzbank (DE:CBKG) in Frankfurt

“The Federal Reserve could cushion a weaker economy with monetary policy measures… protecting the U.S. quite well from weakening global growth and making the dollar the currency of choice,” she added.

U.S.-China trade friction has put pressure on China’s economy, with the latest data showing the world’s second-biggest economy slowing further in the last quarter of 2018. Markets appeared to take the outcome, largely in line with expectations, in their stride. euro nudged up 0.2 percent to $1.1376 EUR=EBS and was headed for its first daily gain in over a week but remained in close reach of a two-week low of $1.1353 brushed on Friday.

The pound was 0.1 percent lower at $1.2860 GBP=D3 .

British Prime Minister Theresa May will on Monday put forward a motion on her proposed next steps. Over the following week, lawmakers will be able to propose alternatives. They will debate these plans on Jan. 29, and voting on them should indicate whether any could get majority support.

The Australian dollar was steady at $0.7166 AUD=D4 after ending Friday on a loss of 0.3 percent.

The Aussie was largely unfazed by China’s growth numbers though analysts agree that any sharp drop in demand from its biggest trading partner would put a dent in local assets.

Dollar set for first weekly rise in 5 weeks on rate gap bets

The dollar steadied on Friday but was set for its first weekly rise in five weeks as doubts grew on the ability of other major global central banks such as the European Central Bank to start raising interest rates this year.

While the prospect of another Fed rate hike has been virtually ruled out of money markets this year, markets have also whittled down the odds of the ECB raising interest rates on the back of weak economic data, weighing on the single currency.

Money markets are assigning less than a 50 percent probability of an ECB rate hike this year and 80 percent likelihood of a rate hike from the Bank of England.

Against a basket of its rivals, the dollar was broadly steady but was set to rise 0.4 percent on the week, its biggest weekly rise since mid-December.

“For non-dollar currencies to make further gains from these levels, we have to see evidence that other major central banks are preparing to tighten policy,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

Weaker economic data is also a feature in China. On Friday, China’s statistics bureau revised down its final 2017 gross domestic product (GDP) growth to 6.8 percent from 6.9 percent, after scaling back initial estimates of the industrial and services sector.

Still, despite the weak economic data, market sentiment was slightly boosted on signs of growing optimism in trade talks between China and the United States.

Chinese Vice Premier Liu He will visit the United States on Jan. 30 and 31 for the latest round of trade talks aimed at resolving the trade standoff between the world’s two largest economies.

That optimism was evident in the euro/Swiss franc cross which edged higher towards a one-week high at 1.1329 francs per euro.

The pound managed to hold on to most of its overnight gains against the euro as traders wagered on a second referendum vote on Britain’s EU membership.

While Prime Minister Theresa May has repeatedly rejected a second referendum, a vocal campaign in favour of holding a new vote has drawn the support of some lawmakers.

Sterling was last down about 0.2 percent at 87.90 pence, trading close to a two-month peak of 87.60 scaled overnight. It is set for its biggest weekly gain in more than 15 months.

Dollar stalls, pound steadies after May wins no-confidence vote

The dollar took a breather on Thursday following its recent strong gains against key rivals, while sterling steadied after British Prime Minister Theresa May’s government won a no-confidence vote in parliament.

The dollar index, which measures the greenback against six major peers, was a shade higher at 96.133 after gaining about 1 percent over the previous five sessions.

On Jan. 10, the dollar almost fell below its 200-day moving average as the index touched a three-month low of 95.029. But then it bounced up, and stayed above that average.

The U.S. currency held onto its gains against the euro as persistent worries about the euro zone economy weighed on the single currency.

Data this week showed Germany barely avoided slipping into recession in 2018′s second half, and European Central Bank chief Mario Draghiwarned on Tuesday that economic developments in the euro zone have been weaker than expected.

The dollar was trading basically flat against the euro at $1.1388 after rising five straight sessions against the single currency, during which it gained about 1.5 percent.

Catching investors’ attention was a report in the Wall Street Journal that U.S. federal prosecutors were investigating Huawei Technologies, for allegedly stealing trade secrets from U.S. businesses and could soon issue an indictment.

Also in focus were concerns the U.S. government shutdown was starting to take a toll on its economy, while investors awaited more cues from the Federal Reserve after a growing number of its officials expressed caution about further rate hikes.

“There’s a lot of speculation that we’ve seen the end to the rate-hike cycle and many people are even talking about rate cuts this year,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.

“The immediate is going to be the messaging from the Fed plus of course their action,” he said. “If we’re assuming that the market is still long dollars, any sort of change in that is going to have a pretty lasting effect.”

The U.S. central bank’s Federal Open Markets Committee will hold the next policy-setting meeting on Jan. 29-30.

Businesses across the United States have become less optimistic in recent months, the Fed said on Wednesday in a report on the economy that supports Chair Jerome Powell’s pivot to more “patience” on interest rate hikes.

The dollar edged lower to 109.00 yen.

The British pound was stable after May survived the no-confidence vote and invited other party leaders for talks to try to break the impasse on a Brexit withdrawal deal after the proposal she presented was voted down by lawmakers on Tuesday.

An outline for May’s Plan ‘B’ is due by Monday and the market assumes there will have to be an extension of the Article 50 exit date past March 29.

“It’s unlikely there will be big changes to May’s plan, so parliament is likely to oppose it as well,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

Sterling was last trading at 88.42 pence per euro, hovering close to a seven-week high of 88.37 pence touched during the previous session.

Against the dollar, it was basically flat at $1.2872, close to a two-month high of $1.2930 hit at the start of the week.

May said late on Wednesday the opposition Labour Party had yet to discuss a new approach to Brexit with her and urged politicians to put self-interest aside to work to break the impasse.

Wakabayashi of State Street Bank said that on the euro and sterling, “I don’t really see why you would responsibly be heavily positioned either way when you’ve this unknown Brexit.”

“I wouldn’t be overexposed either way when there’s such a large question mark,” he said.

Pound steadies after May’s Brexit deal gets voted down in Parliament

The pound steadied early on Wednesday following a volatile overnight session after British lawmakers defeated Prime Minister Theresa May’s Brexit divorce deal by a crushing margin.

The Parliament on Tuesday voted 432-202 against May’s deal, the worst parliamentary defeat for a government in recent British history.

Sterling had sunk more than 1 percent against the dollar earlier on Tuesday but rallied back after the parliamentary vote, with the sizable defeat for May seen forcing Britain to pursue different options.

However, there are also worries the outcome might trigger political upheaval that could lead to a disorderly exit from the European Union.

The pound traded a shade higher at $1.2864 after gyrating between a low of $1.2670 and a high of $1.2917 on the previous session.

“While the margin of May’s loss was a surprise, the defeat itself was something the market had been pricing in for a long time and it appears that participants covered shorts in the pound after the vote,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“The market is now factoring in the March Brexit deadline being extended. In the longer run it may boil down to two scenarios – a no-deal Brexit or no Brexit at all.”

The date set in law for Brexit is March 29, but with the clock ticking down quickly an extension of the deadline now appears more likely.

Against the euro, the pound was little changed at 88.65 pence after gaining about 0.4 percent overnight.

The euro was steady at $1.1411 following a loss of 0.5 percent the previous day.

The dollar was flat at 108.655 yen after advancing 0.5 percent against its Japanese peer overnight amid a further ebb in risk aversion with U.S. stocks posting strong gains.

The Swiss franc, which tends to gain in times of political tensions and market turmoil along with the yen, also sagged.

The franc lost 0.7 percent against the U.S. currency and last held steady at 0.9878 franc per dollar.

The Australian dollar was slightly lower at $0.7199 after dipping 0.2 percent on Tuesday.

Dollar slips on rate view, sterling firms before Brexit vote

The dollar weakened on Tuesday on heightened expectations the Federal Reserve will hold off on raising rates this year due to a slowdown in global growth, while sterling edged up ahead of Britain’s parliamentary vote on its Brexit plan.

Worries over the U.S. economy losing steam as well as a shock contraction in Chinese trade have fanned worries about a sharp global slowdown, which will likely keep the Fed from tightening monetary policy further this year.

The dollar index weakened by 0.12 percent to 95.48.

“There is a strong dislike for the dollar given Fed expectations, but at the same time there is not a compelling replacement,” said Sim Moh Siong, currency strategist at Bank of Singapore. “Over the next 6-12 months, the dollar should trend lower.”

Interest rate futures markets are pricing in no further U.S. rate hikes in 2019.

Fed Chairman Jerome Powell said last week the U.S. central bank has the ability to be patient on monetary policy given that inflation remains stable.

The euro gained 0.1 percent on the greenback to $1.1485, while the Canadian dollar strengthened by 0.15 percent to C$1.3270.

Sterling will be in focus as British Prime Minister Theresa May must win a vote in parliament later on Tuesday to get her Brexit deal approved or risk a chaotic exit for Britain from the European Union. The numbers are not in May’s favour and her chances of winning the vote look extremely slim. May needs to secure 318 votes to win.

Sterling gained 0.3 percent to $1.2901 ahead of the vote.

“Interestingly, speculators have been betting that this outcome could lead to a possible delay to Brexit from 29 March to July (after the EU Parliament elections in May) to allow for fresh elections or a second referendum,” Philip Wee, currency strategist at DBS, said in a note.

But other analysts expect the pound will take a major beating if May loses the vote by a wide margin.

“Losing by 100 or more votes is a major defeat but there’s some talk that she could lose by 200 votes. A major loss will lead to a knee jerk decline in GBP that could take GBP/USD below 1.25 and EUR/GBP above 91 cents,” said Kathy Lien, managing director of currency strategy at BK Asset Management in a note.

Elsewhere, the Australian dollar and kiwi dollar, both considered proxies for global risk appetite, were up 0.2 percent each, having recovered from Monday’s lows.

Sentiment was aided by a fresh round of commitments from Chinese policymakers to stimulate their economy though fiscal and monetary steps.

The Aussie was at $0.7213, while the kiwi dollar fetched $0.6833.

The Aussie dollar has stabilized above the $0.72 level and most analysts think it points to Chinese growth likely bottoming out in the next few quarters.

Given the sharp slowdown in economic activity and the negative impact of the U.S.-Sino trade dispute on the Chinese economy, analysts are hopeful that leaders of the two countries will reach a comprehensive trade deal in the coming weeks.

Trade tensions between the world’s two largest economies had rattled financial markets for most of last year.

Pound struggles as crucial Brexit vote draws near

The British pound was struggling against main rivals on Monday, with a crucial vote on U.K. Prime Minister Theresa May’s Brexit deal just a day away.

The pound GBPUSD, -0.0467%  was trading at $1.2823 from $1.2830 seen late Friday in New York. The euro EURGBP, +0.1008% firmed against the pound, with one euro last buying £0.8944, from £0.8946 late Friday.

U.K. lawmakers will vote on May’s divorce deal with the European Union Tuesday. On Sunday, she warned that rejecting that agreement would “be a catastrophic and unforgivable breach of trust in our democracy,” in a commentary published by the Sunday Express. The deal is not expected to get enough votes to pass, which could mean the country leaves the EU without a deal on March 29.

But it also raises plenty of other questions. U.K. opposition leader Jeremy Corbyn said Sunday the Labour Party will push for a general election if Parliament rejects May’s deal, and that he might force a vote of no-confidence “soon.”

“Are we going to see a no-confidence vote in the government? Or another attempt by Theresa May to secure concessions from the EU? Will there be an Extension of Article 50? Or even extreme scenarios such as a new general election and a second referendum? Each of these scenarios will have a different impact on the pound,” said Hussein Sayed, chief market strategist at FXTM.

The ICE U.S. Dollar Index DXY, -0.09%  held steady at 95.621, with no data scheduled for Monday. Investors were zeroing in on Chinese data that showed weak China imports and exports for December, which underpinned worries of a slowdown in the global growth engine.

Dollar rises versus euro, but outlook remains weak

The dollar rose against the on Friday in choppy trading, boosted by technical factors after the single currency hit key resistance levels, even as the greenback’s outlook remained bleak amid cautious signals from the Federal Reserve about further rate hikes.

“It seems like we’re getting some model and stop-loss buying on the dollar after the euro hit resistance on the upside,” said John Doyle, vice president of dealing and trading at Tempus Inc. in Washington.

“I don’t see any fundamental driver to this move. The sharpest move was in euro/dollar and it has become this across-the-board buying of the dollar,” he added.

That said, investors remained wary of pushing the dollar a lot higher.

This week’s Fed minutes, which underscored the U.S. central bank’s flexibility on monetary policy, triggered dollar selling that lifted the euro as high as $1.1581 and propelled it past a 100-day moving average for the first time in three months.

Greg Anderson, global head of FX strategy at BMO Capital Markets in New York, said the Fed’s rate outlook is one factor for the dollar’s weakness so far in January.

“The change (in Fed communications) this January was that (Fed Chairman Jerome) Powell last Friday and the minutes this week seem to indicate greater flexibility on balance sheet policy,” said Anderson.

He added: “Well, he didn’t seem flexible yesterday. He has been all over the map on the balance sheet.”

Powell’s mixed message was a relief for financial markets in general, but not necessarily for the dollar, Anderson said.

The Fed chairman said on Thursday in a forum at the Economic Club of Washington that the U.S. central bank intends to shrink its balance sheet further, suggesting it is not done tightening monetary policy just yet.

Markets, however, are pricing in no further rate hikes by the Fed this year.

Data showing U.S. consumer prices in December fell for the first time in nine months in December had little impact on the market, but it backed the Fed’s cautious stance about raising rates this year.

In mid-morning trading, the dollar index rose 0.14 percent to 95.67, with the euro falling 0.30 percent to $1.1464.

The dollar was also slightly higher versus the yen at 108.47 yen, and up versus the Canadian dollar, which fell 0.2 percent. The greenback last traded at C$1.3265.

In other trading, the Chinese yuan rose to its highest level since late July against the dollar, as China and the United States extended trade talks in Beijing. China also gave recent assurances of further fiscal boosts to its slowing economy, lifting the yuan as well.