US dollar hobbled by economic worries; euro remains in favour
THE greenback hovered near a five-month low against major peers on Monday (Mar 17), bruised by President Donald Trump’s erratic trade policies and soft economic data, at a time when other currencies, including the euro, benefit from domestic drivers.
The euro was last at US$1.0905, up 0.2 per cent on the day, and heading back towards the US$1.0947 it hit last week – its highest since October 11.
The Japanese yen was also marginally stronger on the day at 148.48 per US dollar, again after hitting its strongest in five months last week at 146.5 to the greenback.
That left the US dollar index, which measures the American currency against its six major counterparts, at 103.5, just off its five-month trough of 103.21 reached last Tuesday.
Currency markets have undergone a shift in recent months, as traders re-evaluate their initial expectations that Trump’s economic policies would both support the greenback and cause other currencies to weaken.
In fact the reverse has happened, and analysts at Societe Generale said on Monday that they had changed their currency forecasts “to reflect Germany’s planned fiscal changes, the US economy’s self-inflicted (relative) fragility, and Japan’s escape from deflation”.
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They see the euro at US$1.13 by year-end, and the yen at 139 per US dollar.
German parties on Friday agreed on a fiscal deal that could boost defence spending and revive growth in Europe’s largest economy.
The deal will likely be approved by the outgoing parliament this week. It includes a US$544 billion fund for infrastructure and sweeping changes to borrowing rules.
“This is such an important moment in Europe’s history that surely it will... confirm that 2022’s EUR/USD low isn’t seen again for at least a decade (or two),” said Societe Generale.
Meanwhile, the Bank of Japan (BOJ) is tipped to keep interest rates steady when it meets on Wednesday, but the conditions for another rate hike have been falling into place, with big Japanese firms offering bumper pay hikes in wage talks with unions for a third-straight year.
Speaking in parliament last week, BOJ governor Kazuo Ueda said he expects wage rises to spur a pickup in consumption, although he was “very worried” about uncertainties surrounding overseas economic developments.
As for the United States, data on Friday showed that consumer sentiment plunged to a nearly two-and-a-half-year low in March and inflation expectations soared amid worries about the effect of Trump’s sweeping tariffs, which have ignited a global trade war.
The US Federal Reserve meets on Wednesday and is expected to hold rates steady. The central banks of Britain, Sweden and Switzerland are also scheduled to meet this week, with markets expecting only the Swiss National Bank to cut rates.
Sterling rose 0.26 per cent to US$1.2971, in line with the euro.
Meanwhile, the Chinese yuan edged back towards its strongest level in four months in offshore trading, changing hands at 7.2332 per US dollar. Last Wednesday, it strengthened to 7.2158 per US dollar for the first time since Nov 13.
On Sunday, China’s State Council unveiled a “special action plan” to boost domestic consumption, featuring measures including increasing residents’ income and establishing a childcare subsidy scheme.
During the session, a string of China data showed the economy started the year on a firmer footing, with retail sales picking up speed in the first two months. REUTERS
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