Dollar in demand; Recession fears start to mount

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By Peter Nurse

AiVIF.com - The U.S. dollar climbed in early European trade Wednesday, as increased recessionary concerns hit risk sentiment, boosting this safe haven.

At 03:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 105.670, after rising around 0.3% overnight.

The dollar suffered its worst monthly performance in November since September 2010, dropping 5% on optimism that the U.S. Federal Reserve is set to slow the pace of its rate hikes, likely resulting in a soft landing for the U.S. economy.

However, sentiment is changing, and the dollar is receiving a bid again as traders factor in the growing threat of recession, primarily in the U.S.

JPMorgan Chase CEO Jamie Dimon summed up these concerns in an interview with CNBC on Tuesday, saying that spending from the pandemic stimulus programs is still propping up the U.S. economy.

Consumers still have $1.5 trillion in excess savings from these programs, but that “will run out sometime mid-year next year,” Dimon said. “When you’re looking out forward, those things may very well derail the economy and cause a mild or hard recession that people worry about.”

EUR/USD fell 0.1% to 1.0455, helped to a degree by German industrial production falling 0.1% in October, less than the expected 0.6% decrease.

The European Central Bank meets next week and is widely expected to increase interest rates again to try and contain inflation, having raised rates by a combined 200 basis points since July.

That said, ECB policymaker Constantinos Herodotou said on Tuesday that the bank’s interest rates are now "very near" their neutral level.

GBP/USD slipped 0.1% to 1.2130 after U.K. house prices fell at the sharpest pace in 14 years in November, dropping 2.3%, according to data from mortgage lender Halifax.

The Bank of England has regularly increased interest rates this year to try and contain inflation rising at double digits, hitting discretionary spending in the country.

USD/JPY rose 0.3% to 137.46, AUD/USD rose 0.1% to 0.6695, while USD/CNY fell 0.2% to 6.9828 after Chinese authorities announced the further relaxation of a number of COVID mobility curbs.

This overshadowed the release of data earlier Wednesday which showed the country’s foreign trade was in its worst state since 2020 when trade was hit by the first COVID lockdown.