An employee counts U.S. dollar banknotes at a currency exchange office in Jakarta, Indonesia October 23, 2018. REUTERS/Beawiharta
January 22, 2019
By Vatsal Srivastava
SINGAPORE (Reuters) – The dollar hovered near 2-week highs against its peers on Tuesday as a slowdown in China’s economy to 28-year lows revived investor concerns over global growth and supported safe-haven currencies.
Overnight, the International Monetary Fund (IMF) cut its 2019 and 2020 global growth forecasts, citing a bigger-than-expected slowdown in China and the Eurozone, and said failure to resolve trade tensions could further destabilize a slowing global economy.
Those fears were brought to the fore on Monday when data showed the Chinese economy grew at its slowest pace since 1990 last year in an ominous sign for 2019. Cooling growth in the world’s second largest economy has already put a dent on profits for firms ranging from Apple to big carmakers.
The dollar index <.DXY>, which measures its strength against a group of six major currencies, was steady at 96.33, holding near a 2-week high of 96.43 hit on Monday.
The yen <JPY=>, another safe-haven currency, was steady against the dollar, fetching 109.64 in early trade.
On the whole, the dollar is also facing indirect pressure from slackening momentum in the global economy which has forced the U.S. Federal Reserve to take a cautious approach on any further interest rate increases. Speculation is rife the Fed might soon pause its tightening cycle.
“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.
Sterling <GBP=> is another currency facing heightened uncertainty as the United Kingdom prepares to leave the European Union on March 29, with no sign yet of any permanent agreement to secure Britain’s economic future with the EU.
May’s Brexit deal was roundly rejected by parliament last week and on Monday she set out a proposal to overcome the impasse by seeking further concessions from the EU on a plan to prevent customs checks on the Irish border.
“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.
Sterling was last steady $1.2888.
Elsewhere, the euro <EUR=> was flat at $1.1367. The single currency is likely to remain under pressure as growth in Europe’s economic powerhouses such as Germany and France is languishing and inflation remains weak. The European Central Bank is widely expected to maintain an accommodative mode for this year.
The Australian dollar <AUD=> was marginally lower at $0.7157, after holding up in the face of the weak growth numbers from the nation’s largest trading partner China.
(Reporting by Vatsal Srivastava; Editing by Shri Navaratnam)