Dollar gains as stocks rebound off lows

Imaduddin December 26, 2018

NEW YORK: The dollar gained against the euro on Wednesday as US stocks came off 20-month lows, though uncertainty relating to the US government shutdown and Federal Reserve monetary policy remained a headwind for the greenback.

Wall Street opened higher after a few punishing sessions that left the S&P 500 on the brink of bear market territory on worries over slowing growth and the drama in the White House.

“There is a modest sense of temporary stability returning to equity markets,” Nick Bennenbroek, a currency strategist at Wells Fargo in New York said in a report.

“That said, trading conditions remain light and investors remain somewhat cautious, watching closely for more US political headlines,” Bennenbroek said.

On Tuesday, US President Donald Trump said the partial shutdown of the federal government was going to last until his demand for funds to build a wall on the US-Mexico border is met.

Trump also expressed confidence in Treasury Secretary Steven Mnuchin, but repeated his criticism that the Fed has raised interest rates too quickly. The dollar has been hit in recent weeks by investor fears that rate hikes will hurt the US economy as international growth sputters.

“There’s an endless laundry list of concerns: Trump berating the Fed, Trade Wars, China slowing growth, Brexit casualties, EU slowdown. But when you factor in a downturn in the US economy, this is when things get ugly,” Stephen Innes, head of trading APAC at Oanda in Singapore said in a note.

The dollar index against a basket of six major currencies gained 0.20 percent to 96.747. It was down from a 1-1/2-year high of 97.711 on Dec. 14.

Liquidity was thin after major markets were closed on Tuesday for the Christmas holiday. Markets in Britain, Germany and France remained closed on Wednesday.

Copyright Reuters, 2018

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