February 8, 2019
By Vatsal Srivastava
SINGAPORE (Reuters) – The dollar held near a two-week high on Friday, as investors rushed to the safety of the greenback following a setback in 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 stabilize 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 steady at 96.56, 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 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 eurozone and expectations that the European Central Bank will keep monetary policy accommodative this year.
The yen was flat in early Asian trade at 109.78. 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.
Elsewhere, the Aussie dollar was down 0.5 percent at $0.7067 as the Reserve Bank of Australia cut its growth forecasts.
The Aussie has shed more than two percent of its value so far this week after the central bank’s signaled a shift from its long-standing tightening bias earlier this week.
But 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,” added Bank of Singapore’s Sim.
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.
(Reporting by Vatsal Srivastava; Editing by Sam Holmes)