FX Rate News

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.

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.

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.

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.

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.