Euro slips on slow­down fears; dol­lar ad­vances

The Financial Daily - - NATIONAL -

LON­DON: The euro edged down on Tues­day as the euro zone econ­omy showed more signs of slow­ing, while the dol­lar gained de­spite grow­ing bets the U.S. cen­tral bank will pause its rate hike cy­cle.

A un­ex­pected fall in Ger­man in­dus­trial out­put for the third straight month helped to weaken the euro. The drop was mod­est, but it un­der­scored con­cerns about a slow­down and the Euro­pean Cen­tral Bank's cau­tion as it tries to wean the re­gion off stim­u­lus.

Ger­man ex­porters are strug­gling with weaker global de­mand and trade dis­putes driven by U.S. Pres­i­dent Don­ald Trump's poli­cies.

"It's yet more weak data that could end up hin­der­ing the ECB's mone­tary tight­en­ing plans," said Thu Lan Nguyen, an FX strate­gist at Com­merzbank in Frank­furt.

The ECB has said it plans to leave rates un­changed through the sum­mer of 2019. Nguyen said she doesn't ex­pect it to tighten pol­icy un­til 2020.

The euro fell 0.2 per­cent to $1.1463. It has traded in a tight range of $1.12 to $1.15 since mid-Novem­ber.

Weak­ness in the euro sup­ported the dol­lar, which rose 0.1 per­cent against a bas­ket of cur­ren­cies to 95.734. The dol­lar in­dex has lost around 2 per­cent since mid-De­cem­ber and re­mains near a three-month low of 95.638 reached on Mon­day.

Fed­eral Re­serve Chair­man Jerome Pow­ell said on Fri­day the Fed is not on a pre­set path of rate hikes and will be sen­si­tive to the down­side risks mar­kets are pric­ing in.

The prospect of no fur- ther rate in­creases are likely to keep the dol­lar un­der pres­sure.

"Grow­ing ex­pec­ta­tions that the Fed will pause on its rate hike cy­cle is weigh­ing on the dol­lar and that will be a big fac­tor in the com­ing days," said Lee Hard­man, an FX strate­gist at MUFG in Lon­don.

The Bri­tish pound traded at $1.2773. Traders ex­pect ster­ling to re­main volatile over the next few weeks as Brexit ap­proaches.

Bri­tish Prime Min­is­ter Theresa May must win a vote in par­lia­ment next week to ap­prove her Brexit agree­ment or risk see­ing Bri­tain's exit from the Euro­pean Union de­scend into chaos.

Else­where, the Aus­tralian dol­lar was lower by 0.1 per­cent at $0.7123. De­spite its weak­ness on Tues­day, traders re­main pos­i­tive on the Aussie dol­lar for now.

Sen­ti­ment has been buoyed by ag­gres­sive stim­u­lus mea­sures in China, the largest im­porter of Aus­tralian com­modi­ties, and by im­proved prospects for a U.S.-China trade deal.

U.S. Com­merce Sec­re­tary Wil­bur Ross said on Mon­day there was a good chance Bei­jing and Wash­ing­ton would reach a trade deal that "we could live with".

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