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Forex - U.S. Dollar Steady, Yen Weakens as Risk Appetite Improves

Published 01/23/2019, 03:13 AM
© Reuters.
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Investing.com - The U.S. dollar was holding steady against a basket of its rivals on Wednesday and the yen was broadly lower as risk sentiment improved, but concerns over slowing global growth and U.S.-China trade tensions looked likely to keep gains in riskier assets in check.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was at 95.97 by 03:10 AM ET (08:10 AM GMT), little changed for the day.

The yen was weaker against the greenback, with USD/JPY advancing 0.26% to 109.64. It was also lower against the euro, with EUR/JPY climbing 0.32% to 124.61.

Overnight, the Bank of Japan kept monetary policy unchanged and trimmed its inflation forecast. Data showing a larger-than-expected drop in December exports earlier in the day underlined the need for continued support for the trade-reliant economy.

The Australian dollar was slightly higher, with AUD/USD rising 0.18% to 0.7135.

The New Zealand dollar was also higher, with NZD/USD gaining 0.5% to trade at 0.6780 after overnight data showing that inflation edged higher in the fourth quarter was seen as reducing the likelihood of interest rate cuts.

Currency markets have been whipsawed over recent weeks amid concerns over a range of issues from Brexit to slowing global growth and the outlook for major central banks.

"Nervousness around global growth and trade tensions is certainly a factor driving the markets right now," said Michael McCarthy, chief markets strategist at CMC Markets.

"Markets have also seen a spectacular run since late December..so the recent correction in equities can also be due to positioning."

On Monday, the International Monetary Fund cut its 2019 and 2020 global growth forecasts, 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.

Growth in China last year was the slowest since 1990 and is set to weaken further this year before stimulus measures start to kick in.

Investors are hoping for a breakthrough in U.S.-China trade talks, with the trade war between the world's two largest economies spooking markets.

A report by the Financial Times that the U.S. had rejected China's offer for preparatory trade talks dampened risk sentiment overnight, though it was later denied by a White House adviser.

The euro and the pound were both flat against the U.S. currency, with EUR/USD at 1.1356 and GBP/USD changing hands at 1.2962.

Sterling gained 0.5% against the greenback on Tuesday after data showing that the U.K. labor market remained strong despite an economic slowdown ahead of the looming deadline for Brexit on March 29.

Sterling is sitting close to its highs last seen in mid-November, a sign that traders expect Britain to avoid a chaotic exit from the European Union.

Since Prime Minister Theresa May’s divorce deal with the EU was rejected by lawmakers last week in the biggest defeat in modern British history, lawmakers have been trying to plot a course out of the crisis, yet no option has the majority support of parliament.

"The market is now completely discounting the prospect of a hard Brexit, though the political risk still remains in play and volatility is sure to ratchet higher if no clear path is visible to the market," said Kathy Lien, managing director of currency strategy at BK Asset Management,

-- Reuters contributed to this report.

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