Dollar Holds Firm As Growth Fears Stalk Markets

South Korean won, Chinese yuan and Japanese yen notes are seen on U.S. $100 notes in this file photo illustration shot December 15, 2015. Reuters / Kim Hong-Ji

The dollar kept trade-sensitive currencies pinned near multi-year lows on Monday and the euro was under pressure as investors sought safety due to worries about slowing global growth.

Data on Friday showed euro zone inflation surging to another record, adding to the case for the European Central Bank to raise interest rates this month.

While the euro was flat at $1.0426 on Monday, it was barely above May's five-year trough of $1.0349, highlighting the market's preference for dollars as gloom clouds the outlook.

The Australian and New Zealand dollars hit two-year lows on Friday and were not far from those levels during the Asia session, with the Aussie down 0.1% at $0.6809, after falling as low as $0.6764 on Friday. The kiwi held at $0.6203. [AUD/]

Trade is likely to be lightened ahead of the Independence Day holiday in the United States.

Safety flows tend to support the greenback, especially at the expense of export-driven currencies, when the world economy is weak. This has kept the dollar elevated even as growth fears have tempered U.S. rate hike expectations.

The U.S. dollar index stood at 105.120, not far below last month's two-decade high of 105.790. The Atlanta Federal Reserve's much-watched GDP Now forecast has slid to an annualised minus 2.1% for the second quarter, implying the country was already technically in recession.

"The Aussie and other commodity currencies and even euro and sterling will likely decline even more into the week, given markets currently are super-focused on the risk of a sharp slowdown in the global economy," said Carol Kong, a currency strategist at the Commonwealth Bank of Australia in Sydney.

Sterling hit a two-week low of $1.1976 on Friday and last bought $1.2090. [GBP/]

Ahead this week, Australia's central bank will meet on Tuesday and investors are also awaiting publication of minutes from last month's Federal Reserve meeting on Wednesday and U.S. employment data on Friday.

Markets have priced in a 40 basis point (bp) rise in Australian interest rates, so the Aussie may not catch much of a boost if a hike of that size, or thereabouts, is delivered.

Minutes of the Fed's June policy meeting on Wednesday are almost certain to sound hawkish, given the committee chose to hike rates by a super-sized 75 bps.

The market is pricing in around an 85% chance of another hike of 75 basis points this month and rates at 3.25% to 3.5% by year end - before cuts in 2023.

Against Asian currencies, the dollar held Friday gains that lifted it to its strongest levels in years on the Thai baht, Indonesian rupiah and Singapore dollar. [EMRG/FRX]

Similarly, the dollar held firm against the Japanese yen, and was last trading at 135.24 per dollar.

The Chinese yuan was one outlier, creeping higher to 6.6915 per dollar. China is emerging from lockdown and its equity markets have been drawing capital flows. Investors seem to regard it as a haven from stagflation risks in the West. [CNY/]

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Currency bid prices at 0457 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0427 $1.0427 +0.01% +0.00% +1.0444 +1.0418

Dollar/Yen

135.0950 135.2700 -0.14% +0.00% +135.2950 +134.8100

Euro/Yen

140.87 140.99 -0.09% +0.00% +141.1700 +140.6200

Dollar/Swiss