The dollar stayed close to its two-week highs against its peers on Tuesday as a slowdown in China’s economy to 28-year lows fueled fresh worries regarding global growth and prompted investors to move into safe-haven currencies.
Overnight, the International Monetary Fund (IMF) slashed its 2019 and 2020 global growth forecasts, citing a bigger than expected sluggishness in China and the Eurozone, and said failure to resolve trade tensions could further cause turbulence in 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 index, which gauges its strength against a group of six major currencies, was steady at 96.33, hovering near a 2-week high of 96.43 reached on Monday.
The dollar strengthened 0.08 percent against the offshore yuan to 6.8049. The greenback has increased around 1 percent over the offshore yuan in the last seven sessions.
The yen, which is another safe-haven currency, was steady against the dollar, gaining 109.64 during early trade. The Bank of Japan is widely expected to keep its policy unchanged at its January 22 to 23 meeting. Analysts are expecting monetary policy to stay 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, who is a currency strategist at Citibank.
Overall, the dollar is also facing indirect pressure from slackening momentum in the global economy which has forced the US Federal Reserve to take a careful approach on any further interest rate increases. Speculation is rife that 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 that the dollar is overbought and over-valued on fundamental metrics,” said Jason Wong, who is senior market strategist at BNZ Markets.
The pound continued to wobble. With little time left until the United Kingdom is scheduled to leave the European Union in March 29, there is no agreement in London on how and even whether it should the world’s largest trading bloc, and a growing chance of a dramatic ‘no-deal’ exit with no provisions to soften the economic shock.
Prime Minister Theresa May’s Brexit deal was rejected by parliament last week and on Monday she set out a proposal to break the impasse by seeking further concessions from the EU on a plan to prevent customs check 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, who is chief operating officer at Rakuten Securities.
The pound was slightly lower at $1.2886.
The euro was flat at $1.1367. The common currency is likely to stay under pressure as growth in Europe’s economic powerhouses, 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 slipped 0.13 percent to $0.7148. The Aussie dollar is likely to remain under pressure because of the weakening sentiment toward China, which is its largest trade partner.
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