The US dollar on Tuesday edged slightly higher from its 2-week lows, but comments from the Federal Reserve about global outlook and weak home builder data continued to weigh on the currency.
The US dollar index, which monitors the greenback’s strength against a basket of major currencies, climbed 0.1 percent to $96.18 after marking a 2-week low of $96.120 on Monday. The index declined almost half a quarter last week, its biggest weekly loss since late September.
Against the safe-haven yen, the dollar dropped 0.1 percent to 112.37, after hitting 3-week low of 112.40.
The Aussie, which is sensitive to shifts in risk sentiment, continued the previous session’s weakness, slipping 0.04 percent to 0.7291 against its US counterpart.
So far this year, the greenback has gained nearly 10 percent from April lows, driven by a combination of rate hikes and positive economic data.
However, the rising possibility that the US economy might have reached its limit has started to erase the gains.
Strategists at a major US bank stated in a 2019 outlook note that dollar could shed as much as 6 percent against the majority of its developed market rivals, as the world’s largest economy begins to slow with the impact from tax cuts and easy conditions fading through 2018.
Fed Expresses Concerns over Global Outlook
Putting the dollar in the red was remarks by New York Fed President John Williams.
Williams stated in a Q&A event that the Fed will be likely raising interest rates somewhat, but it is really in the context of a very strong economy, noting that the central bank’s course is not fixed and will adjust policy to maintain a strong economy with low inflation.
His comments came after Fed Vice Chair Richard Clarida and Dallas Fed President Robert Kaplan expressed concerns over a potential slowdown in the global economy which has led markets to believe the rate-hike cycle does not have much further to run, despite the Fed signaling more rate increases.
The central bank has hiked interest rates three times this year and is expected to raise rates again next month to range of 2.25 percent to 2.5 percent.
The executives’ remarks has left some traders speculating whether the dollar’s rally was nearing its end, with the US 10-year Treasury yields slightly retreating at 3.04 percent.
Fed Chairman Jerome Powell also cited on Wednesday slowing global growth as a headwind to the world’s largest economy.
A UK-based economics firm estimated interest rates to reach 2.75 percent to 3.0 percent in mid-2019.
Chief Market Economist John Higgins said although investors now think the rate will peak closer to the bottom of this range than the top, they are still a long way from discounting the substantial rate cuts that they anticipate in 2020 as the Fed responds to sharp economic slowdown.
Although not a directional driver, home builder data released on Monday also added pressure on the dollar.
Sentiment among homebuilders fell 8 points to 60 points in November in the National Association of Home Builders (NAHB), its lowest reading since August 2016, but anything above 50 is still considered positive.
NAHB Chairman Randy Noel said builders report that they continue to see signs of consumer demand for new homes but that customers are taking a pause due to concerns over rising interest rates and home prices.
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