Dollar gains as growth worry sparks flight to safety; Aussie weakens

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.

Aussie under pressure after RBA’s dovish shift, yen firmer

The Australian dollar remained near a two-week low on Thursday, as investors wagered that interest rates would most likely be cut this year due to mounting growth risks at home and abroad.

Australia’s central bank on Wednesday opened the door to a possible rate cut as it acknowledged growing economic risks in a remarkable shift from its long-standing tightening bias that sent the local dollar sliding.

In early trade, the Aussie dollar was marginally lower at $0.7103, having lost 1.8 percent in the previous session, its largest percentage decline in more than a year.

“We have a clear trading range for the Aussie dollar. The shift in the RBA’s stance will likely make the Aussie test the $0.70 level versus the dollar,” added Michael McCarthy, chief markets strategist at CMC Markets.

The New Zealand dollar was flat at $0.6765, after falling 0.1 percent earlier in the session after weaker-than-expected unemployment data on Thursday. On Wednesday, the kiwi tracked the Aussie dollar’s fall, losing 1.72 percent, its steepest percentage decline since Aug. 9, 2018.

The yen was steady versus the greenback at 109.91. The dollar has gained around one percent versus the Japanese currency so far this month as global risk sentiment improved leading to a modest rally in global equities.

The dollar index, a gauge of its value versus six major peers was steady at 96.35, hovering close to its two-week high in early Asian trade.

The dollar index has gained for three consecutive sessions, mainly thanks to a weaker euro, which constitutes around 58 percent of the index.

The single currency was flat at $1.1364, having lost 0.45 percent of its value on Wednesday. The euro has lost around 1.3 percent over the last week as investors bet that the European Central Bank will keep monetary policy accommodative due to weaker-than-expected growth and low inflation in the common area.

Elsewhere, sterling was marginally higher at $1.2930. The British pound has weakened by 1.3 percent in February due to Brexit woes. 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 and then sell it to skeptical British lawmakers.

The Bank of England is scheduled to meet later on Thursday and is widely expected to keep interest rates unchanged.

“The BoE won’t even consider changing interest rates until the terms to leaving the EU become clear,” said Kathy Lien, managing director of currency strategy at BK Asset Management.

“BoE Governor Mark Carney will reiterate his warning about the risks of a disorderly Brexit and reassure investors that they are ready to increase stimulus if it causes a major disruption in the markets,” added Lien.

Dollar settles near 2-week highs on rate view; Aussie slumps

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.

Australian dollar, yuan slump on bleak China data

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.

Pound tries to find footing amid Brexit uncertainty, dollar awaits Fed

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.

Yen gains on trade tensions, investors await Fed

The yen strengthened versus its peers on Tuesday, as investors took refuge in safe-haven assets after the U.S. Justice Department charged China’s Huawei Technologies Co Ltd with fraud, ratcheting up U.S.-Sino trade tensions.

The United States on Monday charged Huawei, its chief financial officer and two affiliates with bank and wire fraud to violate sanctions against Iran in a case that has escalated tensions with Beijing.

Investors fear the charges could complicate high-level trade talks set to begin on Wednesday when China’s Vice Premier Liu He will meet with U.S. Trade Representative Robert Lighthizer and others.

“There is a much lesser chance now that we get anything positive out of these trade negotiations,” said Nick Twidale, chief operating officer at Rakuten Securities.

“This is likely to be bad for risky assets such as stocks and we expect the dollar/yen and Australian dollar to be under pressure,” Twidale said.

China expressed serious concern about U.S. charges on Huawei, with its foreign ministry saying on Tuesday that Beijing would protect the lawful interests of Chinese companies.

The yen, a currency sought out during times of market uncertainty or economic stress, advanced 0.15 percent versus the greenback to 109.19.

Against the Aussie dollar, the yen was up 0.2 percent at 78.18. The euro also lost 0.1 percent of its value versus the Japanese currency to 124.80 as investors took shelter in the safe-haven currency.

The Aussie dollar was down 0.1 percent at $0.7155, but well off its intra-day low after the Reserve Bank of Australia (RBA) board member Ian Harper said that the next move in Australian rates would be up.

The dollar index, a gauge of its value versus six major peers, was flat at 95.72 and holding close to a two-week low at 0314 GMT.

Market participants are focusing on the Federal Open Market Committee policy meeting between Jan. 29-30, where Chairman Jerome Powell is widely expected to acknowledge growing risks to the U.S. economy as global momentum weakens.

Investors expect the Fed to adopt a more cautious stance on policy than they did in 2018, pressured by signs of a peak in U.S. corporate earnings and the loss of economic momentum both at home and globally.

The interest rate futures market is pricing in no Fed hikes this year. Last year, the dollar enjoyed a solid rally as the U.S. central bank raised rates four times because of a robust economy.

Elsewhere, the euro was a bit weaker at $1.1427, but not far off its highest level in more than a week. Traders believe recent weak economic readings in Germany and France, and the European Central Bank’s dovish stance, are already priced into the euro.

Sterling was also slightly down 0.1 percent at $1.3150, pulling back from 3-month highs. Later on Tuesday, lawmakers will debate and vote on British Prime Minister Theresa May’s next steps, after the overwhelming rejection of her Brexit plan earlier this month, and have been proposing amendments seeking to shape the future direction of Brexit.

Analysts expect sterling to remain volatile. Britain is set to leave the European Union on March 29, but the country’s members of parliament remain far from agreeing a divorce deal.

Dollar up as investors brace for volatile markets; Fed meeting

The euro edged down on Monday as investors bought the dollar and prepared for volatile markets ahead of U.S.-China trade talks and a Federal Reserve policy decision.

Investors are focused on Wednesday’s Fed meeting when policymakers are expected to signal a pause in their tightening cycle and to acknowledge growing risks to the U.S. economy.

That will likely weigh on the greenback, which has fallen 1 percent since late December, after enjoying a boost from the Fed’s four rate increases in 2018.

On Monday, however, the dollar was buoyed by safe-haven buying as traders anxiously await news from U.S.-China talks on Tuesday and Wednesday to see if the world’s largest economies can reach a compromise on trade.

“Unless there is a breakdown in negotiations, we suspect the cautiously risk positive environment can continue – which should favour higher-yielding under-valued emerging market currencies against the dollar,” said Chris Turner, head of foreign exchange strategy at ING in London.

The dollar index, a gauge of its value versus six major peers was marginally higher at 95.896, after falling 0.8 percent on Friday.

A deal last week to reopen the U.S. government for now after a prolonged shutdown reduced investor demand for the safety of the greenback.

“The general direction for the dollar is still down and markets will be taking cues from the FOMC this week,” said Sim Moh Siong, currency strategist at Bank of Singapore.

“The Fed will most likely keep rates steady this year given the state of economic growth outside the U.S.”

The dollar fell 0.1 percent versus the offshore yuan to 6.7406. The rally in the yuan also fuelled a bounce in the Australian dollar, which gained 0.18 percent versus the dollar to $0.7195. Traders are bearish on the dollar for 2019.

The euro was marginally weaker on Monday at $1.14. The single currency managed to cling on to a 0.4 percent gain made last week despite the European Central Bank downgrading its growth forecasts for the near term.

Growth data out of Europe’s economic powerhouses such as Germany and France has been weaker-than-expected and analysts expect the ECB to remain dovish for an extended period.

Traders believe Europe’s slowdown and a dovish ECB are priced into the euro, which has traded in a $1.12-$1.16 range over the last three months.

Sterling drifted lower on Monday after posting its biggest weekly rise in more than 15 months last week as investors consolidated positions before a series of votes in the British parliament on Tuesday that will aim to break a Brexit deadlock.

Analysts expect sterling to remain volatile. Britain is set to leave the European Union on March 29, but the country’s members of parliament remain far from agreeing a divorce deal.

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.