U.S. recession fears "really supported the Dollar"

19 Jan 2023

The U.S. Dollar edged up on Thursday as U.S. economic growth worries fuelled demand for the greenback.

Data published on Wednesday revealed U.S. retail sales declined in December by the most in a year, and manufacturing output clocked its largest fall in almost two years, driving fears the economy is heading towards a recession.

"Those weak data really reinforced market concerns about an imminent U.S. recession ... (which) really supported the Dollar, and I think that will become a growing narrative in the coming months," said Commonwealth Bank of Australia (CBA) currency strategist Carol Kong.

In addition, the Pound declined 0.15% to $1.2330, moving away from the one-month top of $1.2435 from the previous session. The Euro meanwhile held steady at $1.0795, but as Sterling moved away from the nine-month high of $1.08875 hit on Wednesday, Reuters reports.

The new wave of risk aversion, fuelled by the announcement of job losses at Amazon and Microsoft, also kept the U.S. Dollar in bid.

"The effects of the FOMC tightening will just become more and more visible," Kong added.

Elsewhere, the Australian Dollar fell 0.56% to $0.6902, which is dealing with additional pressure from a fall in employment in the country last month.

The New Zealand Dollar lost 0.47% to trade at $0.6415 on Thursday when Prime Minister Jacinda Ardern announced she was stepping down from the role.

In addition, against the Japanese Yen, the Dollar was down 0.82% at 127.87 Yen at the time of writing as the Bank of Japan decided to maintain ultra-low interest rates.

The move led the Yen to fall around 2% against the Dollar and against others shortly afterwards. However, markets rallied from the initial shock move, the Reuters report adds. The Euro was down 0.78% at 138.03 Yen, whilst the Pound declined 0.81% to 157.67 Yen.

"I think it's really reflecting the fact that market participants are still speculating a shift in the Bank of Japan's policy despite their inaction yesterday," added the CBA currency strategist.

"While there's still high expectations for a policy shift ... I think that will keep the Yen pretty elevated in the near term."