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Dollar continues slide as risk-sensitive currencies recover

The dollar was back under pressure Wednesday as a firmer tone for equities and other assets perceived as risky lifted risk-sensitive rivals.

On Tuesday, financial markets were shaken by economic data from China showing a slowing of economic activity in 2018 to a 28 year low, as well as reports that U.S. officials had canceled or turned down a preparatory trade meeting with Chinese counterparts. White House economic adviser Larry Kudlow later denied this cancellation.

The ICE U.S. Dollar Index DXY, +0.02% was slightly weaker, dipping 0.1% to 96.221, adding on from Tuesday’s slight loss. Its main rival, the euro EURUSD, -0.0088% was slightly stronger at $1.1368, up from $1.1362.

Currencies like the Australian dollar AUDUSD, +0.1123% and Canadian dollar USDCAD, -0.0449% which tend to perform better when appetite for assets perceived as risky is on the rise, recovered from their respective slides on Wednesday.

The Japanese yen USDJPY, +0.48% weakened against the U.S. dollar on Wednesday, after gaining the previous day on haven-related buying. Ahead of the Asian market open, the Bank of Japan announced it kept its monetary policy steady, maintained its yield curve control and asset purchases.

“Just like their other central bank peers, the BOJ saw more downside in the economy. While the central bank did raise their GDP forecasts, they slashed their inflation outlooks all the way through 2020/2021, showing no signs of optimism of getting near their target of 2%. The BOJ is running out of options to defeat inflation and may rely on hoping oil prices remain stable,” wrote Edward Moya, market analyst at Oanda.

One dollar last bought ¥109.66, up from ¥109.37 late Tuesday in New York.

The British pound GBPUSD, +0.7024% again vied for the crown of best major currency performer of the session, breaking above the $1.30 threshold for the first time since November on Wednesday. Sterling last fetched $1.3038, up from $1.2955.

While the Brexit gridlock continues ahead of next week’s vote on Prime Minister Theresa May’s alternative deal, market expectations of an extension of article 50 — the treaty article that allows the U.K. to leave the European Union within two years of triggering it — and a receding risk of a no-deal Brexit continue to rise.

Former Chancellor of the Exchequer George Osborne — a remainer — told the BBC that he believed a Brexit delay was most likely, while current U.K. trade secretary Liam Fox — a leaver — said that delaying Brexit would be worse than getting no deal.

Marketwatch [1]

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Ed Moya

Ed Moya [5]

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya