SINGAPORE, Jan 19 (Reuters) – The dollar rose sharply on Thursday as concerns about U.S. economic growth fueled demand for the safe-haven dollar, while the yen renewed its gains as investors doubled down on bets that the Bank of Japan will back away from its curve-control policy yield.
Weak US data released on Wednesday showed US retail sales fell by the most in a year in December and manufacturing output posted its biggest drop in nearly two years, fueling fears that the world’s largest economy is heading for recession.
“That weak data really added to the market’s concerns about an imminent recession in the US … (which) really supported the dollar, and I think that will become a growing narrative in the coming months,” said Carol Kong, currency strategist at Commonwealth Bank of Australia. (CBA).
Sterling fell 0.17% to $1.2327, off the previous session’s one-month high of $1.2435, while the Aussie fell 0.49% to $0.6907, after suffering a loss of 0 on Wednesday .64%.
The euro was down 0.02% at $1.0792, similarly within striking distance of Wednesday’s nine-month high of $1.08875, even as French central bank chief Francois Villeroy de Gaulle maintained a hawkish stance regarding the future increase of the European Central Bank exchange rate.
A new wave of risk aversion – compounded by news of job cuts from tech giants Microsoft ( MSFT.O ) and Amazon ( AMZN.O ) – also kept the dollar in supply.
“The effects of FOMC tightening will become more visible,” Kong said.
However, the dollar failed to rally against the Japanese yen and was last down 0.4% at 128.42 yen, reversing much of its previous day’s gains just after the BOJ’s decision to support its ultra-loose monetary politics.
Defying market expectations, the BOJ kept its target interest rates and yield range intact, and instead built a new weapon to prevent long-term rates from rising too much, showing its determination to keep its ICC policy on hold for now.
The decision sent the yen down about 2% against the dollar and other currencies soon after, along with yields on Japanese government bonds, which at one point on Wednesday fell the most in two decades.
The euro was last down 0.39% at ¥138.58, while sterling fell 0.23% to ¥158.27, as markets continued to test the resolve of the BOJ’s ultra-bullish stance.
“I think it really reflects the fact that market participants are still speculating about a policy change by the Bank of Japan despite their inaction yesterday,” CBA’s Kong said. “While there are still high expectations for a policy change … I think that will keep the yen fairly elevated in the near term.”
Elsewhere, the kiwi fell 0.31% to $0.6425. New Zealand Prime Minister Jacinda Ardern will not seek re-election and plans to step down by early February at the latest, she said in a televised statement on Thursday.
Against a basket of currencies, the US dollar index rose 0.09% to 102.42.
Ray Wee reports. Editing by Gerry Doyle
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