Dollar steady as investors mull over global rates and the outlook for the economy

26 Jun 2023 , 11:14 AM

On Monday, the dollar maintained its position near a one-week high against its major counterparts as traders assessed the impact of prolonged monetary tightening cycles on the global economy and continued concerns about a severe slowdown in major economies.

The recent events in Russia over the weekend kept investors on edge, but the currency market’s response was relatively muted as they evaluated the implications of the failed uprising.

In Asian trading, the euro slightly rose by 0.07% to $1.0902, still recovering from its losses in the previous week. The euro had reached a one-week low on Friday after data revealed a significant slowdown in business growth in the euro zone, primarily due to a sharp decline in manufacturing activity and sluggish growth in the largest services sector.

Sterling saw a 0.1% increase to $1.27285, recovering part of its 0.8% decline from the previous week following the Bank of England’s unexpected 50-basis-point rate hike, which raised concerns about a potential British recession. The UK economy showed signs of slowing down in June, according to the flash Purchasing Managers’ Index (PMI) data released on Friday, while inflation pressures remained high.

Although the manufacturing sector experienced a deeper contraction and US business activity reached a three-month low in June, overall economic growth improved in the second quarter.

As major economies implement aggressive monetary tightening measures, the global economy is expected to weaken further, which would support the US dollar as a safe-haven currency.

Last week, the US dollar held steady at 102.71 against a basket of currencies, marking its first increase in over a month.

In other news, the Japanese yen gained 0.3% against the dollar, reaching 143.27, but remained close to Friday’s nearly seven-month low of 143.87. According to a summary of viewpoints from the Bank of Japan’s (BOJ) June policy meeting, a discussion on revising the central bank’s yield curve management policy is expected to take place early. The divergent stances between the BOJ’s ultra-dovish approach and the hawkish stance of central banks abroad have put fresh pressure on the yen in recent weeks.

Japan’s top currency diplomat, Masato Kanda, stated on Monday that authorities would respond to any excessive moves in the currency market and warned that recent yen movements had been ‘rapid.’

Traders also kept a close eye on events in Russia after heavily armed Russian mercenaries withdrew from Rostov in the south of the country as part of a deal that slowed down their advance on Moscow. This raised concerns about President Vladimir Putin’s grip on power.

The New Zealand dollar increased by 0.19% to $0.61555, while the risk-averse Australian dollar fell by 0.07% to $0.66745.

China also returned from a holiday on Monday, with markets watching for new support initiatives from Beijing to stimulate the country’s struggling economic recovery.

The offshore yuan remained near a seven-month low, standing at 7.2162 per dollar.

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