Dollar Stands Tall As Euro Hit By Economic Gloom, Yen Also Wilts

Big 5

The euro wallowed on Wednesday after disappointing data out of Europe knocked the single currency, lifting the dollar index to a one-week high.

Adding to the gloom, China’s inflation rate slowed more than expected in September to a near five-year low, heightening concerns that global growth is cooling and raising the pressure on governments to take bolder measures to shore up their economies.

The dollar also gained on the yen, whose status as a perennial safe-haven favorite is gradually fading.

“It’s a different scenario than it was before, when the yen usually gained in risk-off environments on safe-haven bids,” said Ayako Sera, senior market strategist at Sumitomo Mitsui Trust Bank in Tokyo.

Higher import costs resulting from a weaker currency has in turn eroded Japan’s balance of trade, further undermining the yen.

Japanese Economics Minister Akira Amari said in parliament on Wednesday that the government is not pursuing a policy to intentionally weaken the yen, and that it is necessary to monitor any negative impact from rising import prices.

The dollar added 0.2 percent to 107.28 yen JPY=, rebounding from a one-month low of 106.68 yen touched overnight.

The common currency fell to a session low of $1.2624 EUR=, and last stood at $1.2638, down about 0.1 percent on the day.

It pulled away from a nearly one-week high of $1.2770 on Tuesday, after a closely watched ZEW survey showed German analyst and investor morale fell below zero for the first time in nearly two years in October.

Also on Tuesday, the German government cut its growth forecasts, euro zone industrial production fell, and Fitch warned it may cut France’s credit ratings, saying the outlook for the country’s economy had deteriorated.

Those factors added to worries about global growth at a time when the U.S. Federal Reserve is unwinding its massive stimulus program and preparing to raise interest rates at some point.

The euro also lost ground against the yen and the Swiss franc overnight. It traded at 135.53 yen EURJPY=R, flat on the day, after plumbing an 11-month low of 135.00 yen on Tuesday. Against the Swiss franc, it dipped to a two-week low of 1.2062 francs EURCHF=R on Tuesday before steadying at 1.2073 in Asian trading.

“ECB President Mario Draghi will have more opportunities to convince markets of the ECB’s resolve when he delivers remarks at two different conferences Wednesday,” analysts at BNP Paribas wrote in a note to clients.

Euro zone 5y5y (5-year forward, 5-year breakeven)inflation expectations fell to a new low of 1.8 percent, suggesting the ECB has an uphill battle ahead. We continue to expect further easing measures in Q1, and would look for ECB officials to continue to stress willingness to do more if necessary,” they said.

The dollar also pushed to its highest level in more than five years on its Canadian peer. It traded as high as C$1.1345 CAD=D4, before edging back to C$1.1333, still up 0.3 percent on the day.

The dollar index, which tracks the greenback against six major currencies, added about 0.1 percent to 85.936 .DXY, though it was still shy of a four-year high of 86.746 marked earlier this month.

Sterling also came in the cross hairs of sellers after data on Tuesday showed British inflation slowed in September to its lowest level in five years, prompting markets to push out the likely timing of an interest rate hike by the Bank of England.

Sterling fell as far as $1.5878 GBP=D4, reaching lows not seen since November 2013 and bringing in focus the November trough of $1.5852. It last stood at $1.5898, steady on the day.

The lack of inflationary pressure across many developed economies, helped in part by a 26 percent slide in oil prices since June, has knocked government bond yields lower.

Even with the Fed on track to wind up its bond-buying program soon, the 10-year Treasury yield US10YT=RR has dropped back below 2.2 percent, reaching 16-month lows. Normally, that would dampen the allure of the greenback.

Source : Reuters