Dollar Edges Higher; Recession Fears Boost Safe Haven

© Reuters

By Peter Nurse

AiVIF.com - The U.S. dollar edged higher in early European trade Tuesday, remaining near a one-week high as global recession fears prompted demand for the safe haven currency.

At 3:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 106.632, climbing above the previous session's peak of 106.55, the strongest since Monday of last week.

Fears of a global slowdown are mounting.

The People’s Bank of China unexpectedly cut interest rates on Monday after the release of weak industrial production and retail sales data indicated that the world’s second-largest economy struggled to shake off the hit to growth from its strict COVID restrictions. 

Europe is facing soaring energy bills this year, which are set to weigh heavily on growth as the year progresses, while New York state factory activity fell in August to the lowest since near the start of the COVID-19 pandemic, a further sign that the world's largest economy is slowing.

Yet the Federal Reserve looks likely to continue its aggressive monetary tightening when it next meets in September. The Fed officials who have spoken since the July meeting have all pushed back against any perception that they’d be pivoting away from tightening any time soon.

This brings the minutes from the July Fed meeting, due on Wednesday, firmly into focus as it will probably offer clues as to what would push the central bank to go big with tightening yet again in September.

USD/CNY rose 0.3% to 6.7920, near a three-month low in the wake of the People’s Bank of China cutting its loan prime rate to 2.75% from 3.70% on Monday.

GBP/USD fell 0.2% to 1.2027 after Britain's labor market showed more signs of cooling with the number of people in employment growing by 160,000 in the April-June period, a lot less than expected, while the number of job vacancies fell for the first time since mid-2020.

EUR/USD fell 0.2% to 1.0142, falling to the weakest since Aug. 5, USD/JPY rose 0.3% to 133.67, and AUD/USD fell 0.4% to 0.6995, with the Aussie dollar weighed by the slowdown in the Chinese economy, a major market for Australia’s raw materials.