The Japanese yen and the Swiss franc gained on Monday, thanks to safe-haven buying as sentiment in financial markets remained fragile on heightened worries over political instability in the United States and fears of a global economic slowdown.
Trading volumes were thinning out with most global markets set to shut for Christmas, while Japan was closed on Monday for a holiday.
There was hardly any appetite among investors to take on risk, with a deteriorating outlook for global growth leaving stocks hurtling down for their worst quarterly performance since 2008.
That has attracted bids for the likes of the yen and Swiss franc, considered a safe-bet during times of economic and political stress. They were up about 0.1 percent each on the dollar in Asian trade.
“The global equity market rout has been driving sentiment in the currency markets. I don’t see any significant rebound in risk sentiment yet,” said Stephen Innes, head of Asia trading, Oanda.
The dollar index, a gauge of its value versus six major peers, lost 0.2 percent to 96.76.
In a widely expected move, the U.S. Federal Reserve raised interest rates by 25 basis points last week for its fourth hike of the year, underpinned by a relatively robust U.S. economy compared with its peers elsewhere.
However, with the Fed signalling “some further gradual” rate hikes despite global risks, traders are growing increasingly nervous that higher borrowing costs would hurt corporate profits and put the brakes on the world’s biggest economy.
Falling U.S. bond yields, particularly in the last several weeks, have further inflamed concerns over U.S. economic prospects and dragged on the dollar.
In recent months U.S. President Donald Trump has expressed his displeasure over rising U.S. rates, arguing that the Fed’s monetary tightening threatens to derail the economy.
Trump had privately discussed the possibility of firing Federal Reserve Chairman Jerome Powell, a move that could roil already volatile financial markets, two sources familiar with situation said on Saturday.
U.S. Treasury Secretary Steven Mnuchin, however, tweeted late Saturday that Trump had told him that he never suggested dismissing the Fed chief.
The partial U.S. government shutdown which could continue to Jan. 3, when the new Congress convenes and Democrats take over the House of Representatives, has also contributed to the souring of risk sentiment.
There was also uncertainty in the Trump administration after the president on Sunday said he was replacing Defence Secretary Jim Mattis two months early, a move apparently driven by Trump’s anger at Mattis’ rebuke of his foreign policy.
The yen gained 0.2 percent, changing hands at 111.03. The heightened fears over slowing global growth benefited the Japanese currency the most last week; it rose 2 percent on the U.S. dollar, and against the Australian dollar, the yen put on a sizable 4 percent.
“Beyond risk-off, we can see dollar/yen sell off more towards 110 if the repatriation and hedging flows start to pick up,” Innes said.
The euro was up 0.2 percent and last fetched $1.1389 on the dollar.
Elsewhere, sterling edged up 0.3 percent to $1.2675. Traders are predicting a volatile period for sterling in January, when Prime Minister Theresa May will seek parliamentary approval for her much-criticised Brexit deal. Sentiment and positioning in the pound remains bearish on growing fears of a chaotic British exit from the European Union.
The Australian dollar, often considered a barometer of global risk appetite, changed hands at $0.7060, gaining 0.4 percent on its U.S. peer after sliding more than 2 percent last week.