Beijing time on August 9 Asian time, the US dollar index fell slightly, currently trading around 102.37, dragged down by the fall in US bond yields. The U.S. dollar rose broadly on Tuesday in safe-haven bids after a string of disappointing Asian trade data hit the Australian and New Zealand dollars and European risk-sensitive currencies fell on the deteriorating global outlook, though most non-U.S. currencies rallied on Wednesday.
The dollar index rose as high as 102.81 on Tuesday, moving further away from a one-week low hit on Friday, and was last up 0.46 percent at 102.54. That followed a mixed U.S. jobs report that showed a cooling but still resilient labor market.
In addition, Moody's cut the credit ratings of a number of small and medium-sized U.S. banks late Monday and said it may downgrade some of the largest U.S. banks. It warned that the credit strength of the banking sector could be tested by weaker funding risks and profitability.
Marc Chandler, chief global strategist at Bannockburn Forex, said: "Weak data from Asian countries such as Japan and Moody's downgrade of US banks are having an impact on risk appetite. "The way to express concern about the growth outlook in the currency markets at the moment is that both the dollar camp (Aussie, NZD and CAD) and the Scandies camp (Norwegian krone and Swedish krona) are underperforming against the dollar."
However, the U.S. 10-year Treasury yield fell to its lowest level in nearly a week on Tuesday, briefly falling below 4%, which weighed on the dollar. The yield on the 10-year Treasury note hovered near a one-week low in Monday trading around 4.002 percent.
Asian trade data hit the AUD and NZD on Tuesday. The Australian dollar hit its lowest since June 1 at 0.6496 on Tuesday and was last down 0.44 percent at 0.6543. The New Zealand dollar fell to a near two-month low of 0.6033 against the greenback on Tuesday before closing down 0.64 percent at 0.6065.
While consumer sentiment remained "extremely pessimistic", Australian business conditions showed continued resilience to interest rate rises, defying expectations of a sharp economic slowdown.
A National Australia Bank (NAB) survey on Tuesday showed the business climate index, which measures sales, employment and profitability, slowed slightly to 10 points in July, but remained above the average since the start of the year. The confidence index rose to two points, meaning optimists outnumbered pessimists. There is a persistent divergence between household and business confidence, suggesting that firms are better able to cope with soaring borrowing costs. The assessment of "household financial conditions compared to a year ago" rose 3.4 percent to 64.3, but remained at "an overall extremely weak level." The "time to buy major household goods" sub-index, which measures the outlook for household spending, again held at a record low of 79 points.
On Wednesday, as the US dollar fell back, the Australian dollar and the New Zealand dollar rebounded slightly, the Australian dollar is currently up 0.18% against the US dollar, trading around 0.6555; NZD/USD is currently trading around 0.6075, up about 0.15%
The pound fell as low as 1.2683 against the dollar on Tuesday and was last down 0.28% at 1.2747. A survey earlier showed British retail sales grew at their slowest pace in 11 months in July. However, Dutch International said that the Bank of England is unlikely to temporarily pause the rate hike. This limited the pound's fall.
James Smith, a Dutch international economist, said in a note that a pause in the Bank of England's rate hike cycle in September may be premature. The Bank of England is widely expected to raise its base rate again at its next policy meeting, as it says rates need to remain "sufficiently high for a sufficiently long time." Smith said there were some observers who thought the boe might pause its rate hike cycle for further action at a later date, thereby forestalling questions about an eventual rate cut. But Smith believes that view is still premature, given the continued contribution of wage growth and higher service prices to inflation. Those pressures may have eased by its next meeting in November, he said, and only then might the central bank consider keeping rates on hold.
On Wednesday, the pound rebounded slightly against the dollar and is currently trading around 1.2764.
The euro closed down 0.42 percent against the dollar at 1.0956 on Tuesday. The euro zone economy remains at risk, a major factor weighing on the euro. On Wednesday, the euro rebounded slightly against the dollar and is currently trading around 10976.
The eurozone economy could shrink by as much as 5 per cent in 2024 as governments opt out of support measures put in place a year ago to counter soaring energy prices, according to an analysis. High interest rates, combined with the government's limited ability to stimulate development, pose a potential constraint on eurozone growth.
The ECB believes that economic growth in the euro zone will be weak in the short term, but in the longer term, the euro zone economy will regain momentum. The ECB will publish updated forecasts for eurozone inflation and growth in September.
The dollar ended Tuesday up 0.62% against the yen at 143.36.
Brad Bechtel, global head of FX at Jefferies, said: "We are definitely in a dollar smile curve, with U.S. fundamentals outperforming the rest of the world. Overall, it's a favorable environment for the dollar to sustain its gains."
Real wages in Japan fell for a 15th straight month in June as prices continued to rise, data showed on Tuesday, but nominal wage growth remained strong with rising wages for high-income workers and widening Labour shortages.
However, the dollar eased slightly against the yen on Wednesday, trading around 143.11, as concerns about the global economic outlook also boosted safe-haven demand for the yen.
All eyes are now on Thursday's US inflation data for July, which is expected to show a 4.8 per cent year-on-year rise in core consumer prices.
There were no important economic data and risk events in Europe and the United States on Wednesday, focusing on the performance of financial data such as China's M2 in July and the market's expected change in the US CPI data in July.
Institutional view summary
1. Capital Economics: Trade expected to be a small drag on US GDP growth;
Andrew Hunter of Capital Economics said in a note that trade is expected to be a "small drag" on U.S. GDP growth in the second half of the year. Today's data showed the trade deficit narrowed to $65.5 billion in June from a revised $68.3 billion in May. Imports fell 1%, while exports edged down only 0.1%. Hunter said the export performance suggests net trade could support economic growth in the third quarter. However, slowing global growth threatens export sales. He therefore concludes that net trade is likely to return as a drag on overall GDP growth in the second half of the year, when GDP growth is expected to slow sharply;
2. Dutch International: EUR/USD is expected to remain in the 1.09-1.11 range in August;
Francesco Pesole, foreign exchange analyst at Dutch International, said in a note that the euro is likely to stay in a 1.09-1.11 range against the dollar in August. The euro fell on Tuesday after a survey by the European Central Bank showed inflation expectations were falling and there was evidence of a worsening economic outlook. However, Pesole said the euro has managed to get through a bad period against the dollar, with investors currently reluctant to sell cyclical currencies such as the euro and expectations of an end to U.S. interest rate hikes leaving little room for the dollar to rally significantly.
3. Uob: EUR/USD still faces further consolidation in the near term;
Uob Group economist Lee Sue Ann and market strategist Quek Ser Leang expect the euro to trade in a consolidation range against the dollar for now; The bank believes that the current price action appears to be part of a consolidation, with EURUSD likely to move between 1.0960 and 1.1035 today; Looking ahead, UOB believes that the recent weakness in the euro has stabilised and is likely to trade in the 1.0920 and 1.1100 ranges over the next 1-3 weeks.
