Safe-haven yen holds sway

Safe-haven currencies such as the yen rose against the dollar on Wednesday, as a cautious mood prevailed on the first trading day of the year on concerns over global growth, the US government shutdown and a slower pace of Federal Reserve rate hikes.

The yen gained 0.3% to $109.39 in Asian trade.

The yen has strengthened for three straight weeks on investors’ lower appetite for risk.

Fears of a global slowdown were aggravated on Wednesday by a survey showing China’s factory activity contracted for the first time in 19 months in December. The Australian dollar, whose fortunes largely depend on the Chinese economy, fell 0.5% to $0.7016.

While traders remain concerned about the broader outlook, there are renewed hopes for a resolution to the US-Sino trade dispute. On Sunday, US President Donald Trump indicated progress toward a settlement of the tensions that have plagued stock markets for much of 2018.

Rising interest rates drove the dollar’s outperformance in 2018 with the Fed raising rates four times. Unemployment remained at historically low levels and wage pressures rose.

However, the dollar has been under pressure in recent weeks as investors grow increasingly nervous about a slowdown in the US economy.

The euro slipped 0.16% to $1.1446. Traders expect it to remain under pressure after losing 4.4% of its value versus the dollar in 2018.

Sterling weakened by 0.15% to $1.2728. The British pound lost 5.5% versus the greenback last year due to Brexit woes.

With three months until the UK is due to leave the EU, British Prime Minister Theresa May’s Brexit deal is floundering and traders expect sterling to remain under pressure.

Commodity currencies such as the Canadian dollar weakened as oil prices fell on fears of slowing demand.

Sterling weakened 5.5% versus the greenback last year due to Brexit woes