Dollar posts largest weekly gain in one month as oil slumps

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The dollar rose on Friday, posting its biggest weekly percentage increase in a month, as risk appetite declined and investors sought the currency’s safety following a steep drop in oil prices that suggested global growth is slowing.
The safe-haven yen and Swiss franc also advanced.

The drop in oil prices fuelled a risk-off wave across the board. U.S. crude futures were last down nearly 8 percent on the day.

“Risk aversion has been the main driver all week, with oil prices driving market sentiment,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
“The dollar is better overall for the week because of the risk-off stance, despite a fairly significant pricing out of 2019 rate hike expectations,” he added.

In afternoon trading, the dollar index was up 0.3 percent at 96.959. It has gained in five of the last six sessions.

The dollar’s near-term outlook, however, has dimmed a little bit as some of the recent U.S. economic numbers have come in weaker than expected and several Federal Reserve officials have struck a cautious tone on the economy. All told, investors increasingly believe the Fed may be nearing the end of its tightening cycle.

That said, Jane Foley, senior FX strategist at Rabobank in London, believes the dollar will still find decent support as investors are likely to remain cautious on emerging market assets.

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“The huge liquidity associated with the greenback, the fact that there is no real default risk on U.S. Treasuries, and the credibility of the U.S. legal system are enough to endow the U.S. dollar with sufficient safe-haven appeal for many investors,” Foley added.

The euro, on the other, fell to a one-week low on signs economic growth could be slowing across the euro zone, with worries about Brexit and Italy’s budget negotiations also weighing on the single currency.

Business growth in the euro zone slowed much more quickly than expected this month, a Purchasing Managers Index survey showed. After German private-sector growth slowed to its lowest level in nearly four years, the euro dropped into negative territory and was last down 0.7 percent at $1.1329 .

In other currency trading, the yen rose broadly on fears about the implications of lower oil prices on global growth.

The dollar slipped 0.1 percent against the yen to 112.86 yen, while the euro tumbled 0.7 percent to 127.86 yen.

Oil prices plunge as production surges
The Australian dollar, often considered a gauge for global risk appetite, weakened 0.4 percent to U$0.7225.

Analysts expect the Aussie to remain subdued ahead of a meeting between U.S. and Chinese leaders at a G20 meeting in Argentina at the end of the month, with markets watching for any sign of whether they may agree to de-escalate their trade war.

Dollar bulls wary after biggest weekly drop in two months

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The dollar steadied on Monday after posting its biggest weekly drop in two months last week as investors grew cautious about the near term outlook for the greenback after dovish comments by U.S. policymakers.

Against a basket of its rivals, the greenback was broadly steady at 96.48 after falling nearly half a percent last week, its biggest weekly drop since late September.

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The dollar has been the surprise winner of 2018, having risen nearly 10 percent from April lows thanks to a combination of interest rate hikes and strong data. But the growing view that U.S. economic growth may have peaked has begun to eat away at these gains.

“Dovish Fed comments on Friday gave some encouragement to investors to take profits on dollar positions which have risen in recent weeks,” said Jane Foley, head of FX strategy at Rabobank based in London.

Richard Clarida, the Fed’s newly appointed vice chair, cautioned about a slowdown in global growth, saying “that’s something that is going to be relevant” for the outlook for the U.S. economy.

Federal Reserve Bank of Dallas President Robert Kaplan, in a separate interview with Fox Business, also said he is seeing a growth slowdown in Europe and China.

Their comments come at a time when long dollar positions have swelled to their biggest levels in nearly two years despite a modest decline last week, according to futures data.

Latest U.S. Treasury holdings data also weighed on the dollar. China and Japan, the two biggest foreign U.S. creditors, cut their U.S. Treasury holdings further in September as foreign appetite for Treasuries declined.

Despite the dollar’s weakness, the euro failed to rally significantly above the $1.14 levels as concerns over negotiations between Brussels and Rome over Italy’s budget plans sapped broader appetite. It was changing hands at $1.1422.

Elsewhere, sterling remained in the spotlight with the currency expected to remain under pressure until the market gets more clarity on the progress of the Brexit deal.

It was 0.2 percent firmer against the dollar at $1.2864 after a 1 percent drop last week as British Prime Minister Theresa May’s draft EU divorce deal has met with stiff opposition with several ministers resigning.

bit coinBitcoin sinks to new 13-month low

LONDON (Reuters) – Bitcoin slumped to a new 13-month low on Monday, with the biggest cryptocurrency touching $5173.23 on the Bitstamp platform BTC=BTSP.

Bitcoin was last down 5.2 percent at $5270. The cryptocurrency, and other lesser coins including ethereum and XRP, endured a sell-off last week, with some blaming fears that a “hard fork” in bitcoin cash, where the smaller coin that split into two separate currencies, could destabilize others.

Stocks turn mixed, dollar faces rate hike uncertainty

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SYDNEY (Reuters) – Share markets turned mixed in Asia on Monday amid conflicting signals on the prospects for a truce in the Sino-U.S. trade dispute, while the Federal Reserve’s newly-found concerns over the global economy constrained the dollar.

MSCI’s broadest index of Asia-Pacific shares outside Japan dithered either side of flat through a sluggish session. Chinese blue chips manage to add 0.5 percent, as did Japan’s Nikkei.

But E-Mini futures for the S&P 500 slipped 0.36 percent and spread betters pointed to modest opening losses for the major European bourses.

Wall Street had firmed on Friday after U.S. President Donald Trump said that he may not impose more tariffs on Chinese goods after Beijing sent a list of measures it was willing to take to resolve trade tensions.

The comment stoked speculation of a deal when Trump meets Chinese President Xi Jinping on the sidelines of a G20 summit in Argentina later this month.

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However, Sino-U.S. tensions were clearly on display at an APEC meeting in Papua New Guinea over the weekend, where leaders failed to agree on a communique for the first time ever.

U.S. Vice President Mike Pence said in a blunt speech that there would be no end to U.S. tariffs on $250 billion of Chinese goods until China changed its ways.

“The comments from Trump were seen as offering a glimmer of hope that further tariff action could be held in abeyance,” said NAB’s head of FX strategy, Ray Attrill.

“The exchange of barbs between Pence and Chinese President Xi Jinping in PNG on the weekend continues to suggest this is unlikely.”

SENSING A FED SHIFT
Also uncertain was the outlook for U.S. interest rates.

Federal Reserve policymakers are still signaling rate increases ahead but also sounded more concerned about a potential global slowdown, leading markets to suspect the tightening cycle may not have much further to run.

“Fed officials are having an easier time showing a slightly less hawkish leaning by noting the emerging global slowdown,” said Deutsche Bank’s macro strategist Alan Ruskin.

“It’s undercutting expectations of rate hikes moving above ‘neutral’,” which the Fed has nominated as between 2.5 and 3 percent. “This shift in tone is subtle, but fits with the more bullish bond market tone of late, and is starting to have a material impact on the dollar.”

That will focus attention on an appearance by New York Fed President John Williams later on Monday to see if he echoes the same theme.

Investors have already lengthened the odds on further hikes, with a December move now priced at 73 percent, down from over 90 percent. Futures imply rates around 2.74 percent for the end of next year, compared to 2.93 percent early this month. <0#FF:>

Yields on U.S. 10-year paper have duly declined to 3.06 percent, from a recent top of 3.25 percent.

The dollar followed to hover at 96.509 against a basket of currencies, down from a peak of 97.693. The euro was parked at $1.1400, while the dollar backed off to 112.72 yen.

Sterling remained vulnerable at $1.2826 after political turmoil over Brexit caused steep losses last week.

British Prime Minister Theresa May said on Sunday that toppling her would risk delaying Brexit as she faces the possibility of a leadership challenge from within her own party.

With both pro-EU and pro-Brexit lawmakers unhappy with the draft agreement, it is not clear she will be able to win the backing of parliament, raising the risk Britain leaves the EU without a deal.

In commodity markets, gold found support from the drop in the dollar and held at $1,1220.19.