Dollar Pushes Higher; Pound Slips as Risk Sentiment Pressured

Investing.com - The U.S. dollar pushed higher against a basket of its key rivals on Thursday, building on its recent strong gains, while the pound slipped amid softer risk sentiment.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was up 0.14% at 95.80 by 03:54 AM ET (08:54 AM GMT), after gaining about 1% over the previous five sessions.

Market sentiment remained subdued amid concerns that the U.S. government shutdown is beginning to take a toll on the economy, while investors awaited more cues from the Federal Reserve after a growing number of its officials expressed caution about further rate hikes.

“There’s a lot of speculation that we’ve seen the end to the rate-hike cycle and many people are even talking about rate cuts this year,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.

“The immediate (impact) is going to be the messaging from the Fed plus, of course, their action,” he said. “If we’re assuming that the market is still long dollars, any sort of change in that is going to have a pretty lasting effect.”

The Fed will hold its next policy-setting meeting on Jan. 29-30.

Businesses across the U.S. have become less optimistic in recent months, the Fed said on Wednesday in a report on the economy that supports Chair Jerome Powell’s pivot to more “patience” on interest rate hikes.

The yen, typically sought by investors as a safe haven during times of economic or market stress, gained ground against the greenback, with USD/JPY down 0.28% at 108.76.

The euro edged lower against the U.S. currency, with EUR/USD dipping 0.11% to 1.1386 as persistent worries about the euro zone economy weighed.

Data this week showed Germany barely avoided slipping into recession in 2018’s second half, and European Central Bank head Mario Draghi warned on Tuesday that economic developments in the euro zone have been weaker than expected.

The pound was also weaker against the dollar, with GBP/USD down 0.18% to 1.2857 as uncertainty over Brexit rumbled on. Sterling was a touch lower against the euro, with EUR/GBP inching up 0.14% to 0.8856.

As expected, British Prime Minister Theresa May narrowly won a confidence vote overnight and invited other party leaders for talks to try to break the impasse on a Brexit withdrawal deal after the proposal she presented was voted down by lawmakers on Tuesday.

An outline for Plan 'B' is due by Monday and the market assumes there will have to be an extension of the Article 50 exit date past March 29.

"Nothing has happened in the last 24 hours to dissuade us from the view that we are headed in the direction of an Article 50 delay, a softer Brexit or no Brexit," said Ray Attrill, head of FX strategy at NAB.

Wakabayashi of State Street Bank said that on the euro and sterling, “I don’t really see why you would responsibly be heavily positioned either way when you’ve this unknown Brexit.”

“I wouldn’t be overexposed either way when there’s such a large question mark,” he said.

-- Reuters contributed to this report.

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