Politics
EFX

FOREX-Dollar drops to one-month lows on questions over U.S. growth

* Updates with latest prices

* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Dec 20 (Reuters) - The dollar fell to a one-monthlow on Thursday on growing concerns that U.S. policymakers maybe raising interest rates just as the world's biggest economyfaces a slowdown.

While the Federal Reserve raised interest rates for thefourth time in a year and officials signalled they may hikethree more times by early 2020, bond markets marked increasedexpectations the U.S. economy may be running out of steam.

The U.S. bond yield curve -- a widely considered indicatorof future recessions -- flattened to 10 basis points and just ashade above a 11-year low set earlier this month with aninversion widely considered as a harbinger of recession.

Further fuelling growth concerns was a view that favourableinvestment flows such as repatriation investments from U.S.companies was slowing substantially.

"The Fed seems to be suggesting there is more risk to theirreaction function than to remain on auto-pilot on interest ratesfor next year with flow trends also acting as a headwind for thegreenback," said Kamal Sharma, director of G10 FX strategy atBank of America Merrill Lynch in London.

Repatriation flows peaked at nearly $300 billion in thefirst quarter of 2018 but has shrunk to nearly a third at $93billion in the September quarter according to latest U.S. data.

The dollar fell 0.8 percent .DXY against its rivals to96.258, its lowest level in a month. On a daily basis, it is setfor the biggest percentage drop in six weeks.

CROWN SHINES

Sweden's currency led gainers with the krona SEK=D3 jumping more than 1.5 percent against the dollar on Thursdayafter the central bank raised interest rates for the first timein more than seven years.

A rate hike by the Riksbank was not a consensus view in theforeign exchange markets, with a Reuters poll showing two thirdsof analysts expected the Riksbank to keep rates unchanged. Theremainder predicted a tightening.

Sweden's decision to raise interest rates also fuelledexpectations that other major central banks will also hikepolicy rates next year with the Bank of England and the EuropeanCentral Bank emerging as the most likely candidates.

"Along with the usual year-end thin market trading problems, we are seeing some messy markets in currencies thismorning and the dollar is struggling as a result of that," saidAlvin Tan, a currency strategist at Societe Generale in London.

Indeed, while the Fed's 'dot plots' now signal two, insteadof three, rate hikes for next year, the market is unconvincedand is barely pricing in one increase in a reflection ofheightened market concerns of the state of the global economy.

The euro EUR=EBS rose 0.8 percent to $1.1471EUR=EBS building on gains on Wednesday on news that Italy had struck adeal with the European Commission over its contested 2019 budgetand some solid trade data this week.

The Japanese yen JPY=EBS advanced half a percent, changinghands at 111.77 on the dollar and poised for fifth straight dayof gains. In a widely expected decision, the Bank of Japan keptrates steady, maintaining its ultra-loose monetary settings.

Sterling GBP=D3 gained 0.6 percent to $1.2688.

The Bank of England is due to hold its final policy meetingof the year on Thursday, where markets expect the central bankto stay on hold.

While the Fed raised interest rates by a quarter point,China's central bank rolled out a policy tool to spur lending tosmall and private firms in a move that some analysts termed asequivalent to a targeted rate cut.

saikat.chatterjee@thomsonreuters.com saikat.chatterjee.reuters.com@reuters.net


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

EFX

Other Topics

Stocks World Markets

Reuters

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV.

Learn More