The dollar gained ground versus most leading rivals, with the exception of the Japanese yen, on Wednesday, after a round of weak Chinese economic data underlined global growth worries and was blamed for sparking a global equity selloff.
Markets “remain fragile and safe havens remain bid. The USD (U.S. dollar) will have a hard time selling off too dramatically as its attraction as both a safe haven and a high yielder will matter and spark further demand for USD assets,” said Brad Bechtel, analyst at Jefferies, in a note.
In recent trading, the ICE U.S. Dollar Index DXY, -0.13% was up 0.6% at 96.773. The dollar index logged its best annual rise in three years, up 4.3% in 2018, a year marked by worries about global tariffs, softening international economic growth and a Federal Reserve apparently adamant about normalizing interest-rate policy, if now at a slower pace than imagined just a few months ago.
Against the yen USDJPY, -1.59% the dollar bought ¥108.88, down from ¥109.72 late Tuesday. Over the last four trading sessions, the yen has gained around 2%.
Signs of sputtering global expansion and broad stock-market jitters on the first trading day for equities in 2019 pushed investors into the relative shelter of the dollar, and initially, the haven yen. Asian stocks sold off sharply, driven by worries over the health of the world’s second-largest economy, China, which has fueled an aversion to riskier assets.
European stocks traded lower but trimmed losses to finish slightly lower. U.S. stocks opened with hefty losses, but subsequently ended in positive territory, continuing recent volatile trade.
Beijing’s official read of manufacturing for December showed a more severe drop than one issued earlier, reflecting a fall to the weakest level since February 2016. The Caixin manufacturing purchasing managers index registered 49.7 in December. A reading below 50 signals weakening conditions.
The dollar gauge, which measures the buck against a basket of a half-dozen currencies but is heavily weighted toward the euro, put in the best yearly performance in 2018 since a 9.3% return in 2015, according to FactSet data.
That trend was challenged lately, however, with the dollar index down 0.6% last week, amid growing uncertainty about how aggressive the Fed will be in increasing rates this year and in years to come. The Fed lifted interest rates for a ninth time two weeks ago but Chairman Jerome Powell signaled that the central bank may been more hesitant to do so amid signs of “cross currents” in the market and flagging growth abroad.
There is “increased speculation that the Fed may have potentially overestimated the number of rate hikes it plans to deliver in 2019 and therefore, a more cautious period may be approaching” for the dollar, said Christina Parthenidou, analyst at brokerage XM.
Market participants are also watching a partial U.S. government shutdown that is nearing its second week, with President Donald Trump inviting top lawmakers to sit down Wednesday afternoon and discuss reopening the government by resolving a dispute over funding for a U.S.-Mexico border wall.
Hopes that a long-running trade clash between the U.S. and China may be resolved also has taken a toll on the greenback. Trade-war tensions between the world’s two largest economies had been a key source of strength for the U.S. unit, with traders viewing the buck as a haven in the event that tariff disputes worsen.
Against its Chinese counterpart, one dollar last bought 6.862 yuan USDCNY, +0.2157% compared with 6.785 yuan late Tuesday. The more freely traded offshore yuan USDCNH, +0.0625% was at 6.8802, a gain of around 0.1% against the buck.