Dollar edges lower as risk sentiment steadies

NEW YORK: The US dollar edged down on Monday as riskier currencies firmed, helped by investors’ improved appetite for risk, while the safe-haven yen was volatile on reports that Japan will consider revising a decade-old blueprint for fighting deflation.

World stocks steadied near six-week lows on Monday and bond yields crept higher as investors started the year’s last full trading week still mindful of interest rate hike risks in 2023.

The euro was 0.2% higher against the US dollar at $1.06035, not far from the six-month high of $1.0737 touched last week.

“I think the dollar is generally softer on slightly higher risk-on trading,” said John Doyle, vice president of dealing and trading at Monex USA.

The US currency, which roared higher for much of this year, lifted by a hawkish Federal Reserve and rising geo-political tensions, has come under pressure in recent weeks as investors bet the central bank may have limited room to keep on with its inflation-fighting interest rate hikes.

Last week, Chair Jerome Powell said the Fed will deliver more interest rate increases next year despite a possible recession in the United States, with rates expected to peak above 5%.

A survey of business morale in Germany showed a bigger increase than expected in December, supporting broader market risk sentiment, as the outlook for Europe’s largest economy improved despite the energy crisis.

European Central Bank vice-president Luis de Guindos said on Monday that it will keep raising euro zone rates to curb inflation and is not considering revising its own mid-term inflation goal of 2%.

The Australian dollar, viewed as a liquid proxy for risk appetite, was 0.46% higher after President Xi Jinping and his senior officials pledged to shore up China’s battered economy next year in the face of the worsening spread of COVID-19 in the capital Beijing.

“Aussie is getting a bit of a lift on the Chinese news,” said Doyle.

“(The move) might be a bit of a relief rally after getting stomped at the end of last week,” he said.