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US dollar rises on global growth worries; Aussie down

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US dollar rises on global growth worries; Aussie down
© Reuters. U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/file photo

By Saqib Iqbal Ahmed

NEW YORK (Reuters) -The dollar rose to a near six-month high against a basket of currencies on Tuesday as jitters over global growth, particularly in China, caused investors to flock to the safe-haven U.S. currency.

The dollar slumped after the Reserve Bank of Australia kept rates steady.

China’s services activity expanded at the slowest pace in eight months in August, a private-sector survey showed on Tuesday, as weak demand continued to dog the world’s second-largest economy and stimulus failed to meaningfully revive consumption.

The decline in euro zone business activity accelerated faster than initially thought last month as the bloc’s dominant services industry fell into contraction, according to a survey which suggests the bloc could drop into recession.

“Worries are on the rise about a China and Europe-led slowdown in global growth. As a result the dollar is catching a solid safe haven bid,” said Joe Manimbo, senior market analyst at Convera in Washington.

“At the same time elevated inflation in the U.S. is leading to fading expectations for the Fed to cut rates any time soon,” he said.

Federal Reserve Governor Christopher Waller said on Tuesday the latest round of economic data was giving the U.S. central bank space to see if it needs to raise interest rates again, while noting that he currently sees nothing that would force a move toward boosting the cost of short-term borrowing again.

Financial markets believe the Fed’s rate hikes are over. But Waller cautioned against making such an assumption, noting that the Fed has been burned before by data that appeared to show an improvement on the inflation front only to see price pressures come in stronger than expected.

The – which measures the currency against six major counterparts – was up 0.62% at 104.8. The index hit a near 6-month high of 104.85 earlier in the session.

“From here we could potentially make a run at its 2023 highs if we continue to see weakness abroad,” Convera’s Manimbo said.

The euro was down 0.69% after hitting a near 3-month low against the dollar at $1.07225.

The U.S. dollar also climbed against China’s currency, and was last up 0.36% at 7.3035 against the yuan traded offshore.

The China-exposed Australian dollar was one of the weakest currencies against the greenback, down 1.29% at a fresh 10-month low, after Australia’s central bank on Tuesday kept interest rates steady for a third month, encouraging speculation the tightening cycle was over as policymakers indicated they have a firmer grip on prices.

“It’s kind of a one-two punch against the Aussie. On the one hand you had a status quo decision by the RBA and on the other you had the worrisome news out of China,” Convera’s Manimbo said.

The dollar climbed to a 10-month high of 147.8 yen as traders watched for any signs the Japanese government was ready to intervene to prop up their currency, as it did last year.

A deteriorating global growth picture sent the pound to a 12-week low against the dollar after a survey showed business activity in Britain contracted last month. The pound was last down 0.5% at $1.2565.

In cryptocurrencies, bitcoin slipped 0.29% to $25,743, hovering near a 12-week low.

Forex

Dollar just lower; euro set for sharp weekly loss on political turmoil

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Investing.com – The U.S. dollar slipped marginally Friday, while the euro also fell, heading for a sharp weekly loss amid political turmoil in the region. 

At 04:20 ET (08:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 105.125.

Dollar edges lower

Despite these small losses, the dollar is on course for small gains this week after the left the funds rate on hold at 5.25%-5.5%, but reduced the number of cuts projected this year to just one, from three in March.  

That said, these gains are limited after both U.S. and prices came in weaker than expected, suggesting inflationary pressures were easing, while for unemployment benefits increased to a 10-month high last week.

Despite the Fed’s June dot plot showing a median projection of just one rate cut in 2024, Goldman Sachs continues to expect a first rate cut in September and a second cut in December.

“Our 2024 inflation forecast is now a touch below the FOMC’s, which Chair Powell characterized as ‘fairly conservative.’ With two better rounds of inflation data now in hand, we think that if the next three rounds are in a similar range, the leadership is likely to push through a cut in September,” the U.S. bank added.

Euro weakens on political turmoil

fell 0.3% to 1.0708, on course to register weekly losses of around 0.8% with the European region mired in political turmoil after far-right parties made gains in European Parliament elections, which concluded on Sunday.

French President Emmanuel Macron responded to losses to the right-wing National Front party, led by Marie Le Pen, by calling for a snap election in France.

“It looks like the euro is taking another leg lower in early Europe today on news that the French parties of the Left are getting their act together to form a coalition and only run one candidate per district between them,” said analysts at ING, in a note. “This rare cooperation of the Left stands to suck support from President Macron’s party further.”

in France rose 2.6% year-on-year in May, slightly revising down its preliminary reading of a 2.7% increase published in late May.

EU-harmonised year-on-year in the bloc’s second-biggest economy accelerated in May in comparison to the April reading of 2.4%.

fell 0.2% to 1.2729, heading for small gains this week, after stronger-than-expected inflation data last month in Britain prompted investors to push back their bets on the start date for BoE rate cuts late into 2024. 

The May U.K. release is due next week, as is the Bank of England’s next .

Yen weakens after BOJ meeting 

In Asia, traded 0.3% higher to 157.56, after the disappointed markets with its plans to tighten policy.

The BOJ kept rates steady and said it will only provide clear signals on its plans to begin reducing its bond purchases at its July meeting, and that it was meeting with market participants in the interim to gain more insight. 

gained 0.1% to 7.2557, rising to a near seven-month high, with sentiment towards China battered by the EU imposing steep tariffs on electric vehicle imports from China. 

 

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Election concerns in France give euro worst week in two months

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By Karen Brettell

(Reuters) -The euro was on track for its biggest weekly fall against the dollar in two months on Friday on concerns that a new government will worsen France’s fiscal situation as a snap parliamentary election approaches.

The yen hit a six-week low against the dollar, before rebounding, after the Bank of Japan (BOJ) surprised markets with a dovish monetary policy update.

French markets saw the biggest weekly jump since 2011 in the premium that investors demand to hold French government debt and bank stocks tumbled on Friday.

The concern is “the instability combined with the already existing pressure on the budget,” said Brad Bechtel, global head of FX at Jefferies in New York, adding that “any time spreads widen in Europe, the euro suffers.”

French Finance Minister Bruno Le Maire said on Friday that the euro zone’s second-biggest economy was at risk of a financial crisis if either the far right or left won because of their heavy spending plans.

Marine Le Pen’s eurosceptic National Rally (RN) is leading in opinion polls.

“On both ends of the French political spectrum, the parties that are campaigning are fiscally expansionist parties,” said Karl Schamotta, chief market strategist at Corpay in Toronto. “Markets are mostly responding to additional fiscal stress.”

The euro is on track for a 0.95% weekly fall – its biggest since April – and was last down 0.34% on the day at $1.0699. It got as low as $1.06678, the lowest since May 1.

The euro’s weakness has helped drive the dollar higher. The – which tracks the currency against six peers – was up 0.3% at 105.55 and reached 105.80, the highest since May 2.

“We’re seeing flows into the U.S. on both ends of the spectrum – from the safe-haven side as well as on the yield-seeking side – given that U.S. yields remain well above those available elsewhere,” said Schamotta.

The European Central Bank and Bank of Canada have begun cutting rates while the Federal Reserve holds steady.

The U.S. central bank adopted a more hawkish than expected tone at this week’s meeting when Fed officials projected only one rate cut this year and pushed out the start of rate cuts to perhaps as late as December.

But for now, “the Fed is sort of taking a backseat when it comes to the dollar,” Bechtel said. Elections in emerging markets and Europe are instead driving moves, he said.

A survey on Friday showed that U.S. consumer sentiment deteriorated in June as households worried about inflation and incomes.

Other data showed that U.S. import prices unexpectedly fell in May amid lower prices for energy products, providing another boost to the domestic inflation outlook.

Softer than expected consumer and producer price inflation for May this week has helped bolster hopes that inflation will continue to ease closer to the Fed’s 2% annual target and make an interest rate cut possible as soon as September.

Chicago Fed President Austan Goolsbee on Friday said he felt “relief” after the consumer inflation data, but added there needs to be more progress.

The yen fell after the BOJ’s decision to hold interest rates and restart bond buying.

In a surprise for markets, the BOJ said it would continue to buy government bonds at the current pace for now and lay out details of its tapering plan at its July policy meeting.

BOJ governor Kazuo Ueda said the central bank was “paying close attention” to the impact of the weak yen on inflation, and added that a rate hike in July was a possibility, depending on economic data.

The dollar was last up 0.17% at 157.29 , after earlier reaching 158.26, the highest since April 29.

© Reuters. FILE PHOTO: A woman holds Euro banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

The yen’s decline to a 34-year low of 160.245 per dollar at the end of April triggered several rounds of official Japanese intervention totaling 9.79 trillion yen ($62 billion).

In cryptocurrencies, bitcoin fell 1.84% to $65,453.

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BoJ’s announcement will weaken the yen – Julius Baer

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Investing.com – Following the decision by the Japanese monetary authority to maintain interest rates at 0.10%, having previously abandoned the ultra-loose policy with negative rates, the perception with the end of bond purchases later than expected is that the yen will weaken, Julius Baer pointed out in a note Friday. The projection is for a devaluation to 160 , from the current 157.46.

“Bond purchases will now be phased out cautiously and will only begin in July. The end of bond purchases later than expected and unchanged interest rates disappointed and weakened the yen,” pointed out the Swiss group.

David Kohl, chief economist at Julius Baer, ​​says details on how bond purchases will be gradually phased out are expected only at the next meeting, which would have disappointed investors.

“A tightening of policy at the next meeting is now very likely, but will most likely be implemented cautiously,” adds Kohl, who projects a ten basis point rise in rates in July.

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