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Forex - Dollar Firm as Pessimism over Global Growth hits Risk Sentiment

Published 22/01/2019, 07:51
Updated 22/01/2019, 09:08
© Reuters.

© Reuters.

Investing.com - The dollar was trading near two-week highs against a basket of its rivals on Tuesday as concerns over the outlook for the global economy underpinned investor demand for safe haven assets.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was up 0.14% to 96.12, the most since Jan. 4 by 02:50 AM ET (07:50 AM GMT).

The International Monetary Fund cut its 2019 and 2020 global growth forecasts on Monday, citing a bigger-than-expected slowdown in China and the euro zone and said failure to resolve trade tensions could further destabilize a slowing global economy.

The downgrade came just hours after China reported its slowest quarterly economic growth since the financial crisis and its weakest annual expansion since 1990.

The dollar was a touch lower against the yen, which is often sought by investors as a refuge in times of market uncertainty, with USD/JPY dipping 0.11% to 109.53.

The greenback had risen more than 1% against the yen last week, hitting a two-and-a-half week high of 109.88 on Friday.

The Bank of Japan is widely expected to keep its policy unchanged at its upcoming meeting later in the week and analysts expect monetary policy to remain highly 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.

The dollar has also come under pressure as concerns over slowing global growth have forced the U.S. Federal Reserve to take a cautious approach on any further interest rate increases. Interest rate futures no longer reflects any expectations for Fed rate hikes this year, and recent comments by Fed officials have also suggested no further tightening in the next few months.

"We do not see the Federal Reserve raising rates this year which should lead to weakness in the dollar. We also think the dollar is overbought and over-valued on fundamental metrics," said Jason Wong, senior markets strategist at BNZ markets.

The euro was almost unchanged for the day, with EUR/USD changing hands at 1.1368.

Sterling was holding steady with GBP/USD at 1.2889 amid ongoing uncertainty over Brexit.

On Monday, British Prime Minister Theresa May put forward a motion on her proposed next steps, designed to break the deadlock in parliament, after her Brexit divorce deal was voted down by an overwhelming majority last week.

"With deadlines fast approaching and what seems to be a real impasse between the various sides involved, the prospect of a hard ‘no deal’ Brexit appears to becoming more likely," said Nick Twidale, chief operating officer at Rakuten Securities in a note.

The Australian dollar was slightly weaker, with AUD/USD edging down 0.12% to 0.7147. The Aussie dollar is likely to remain under pressure due to the weakening sentiment toward China, its largest trade partner.

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