Dollar weakens, euro under pressure

Dollar weakens, euro under pressure

The dollar kept its trade sensitive currencies near multi-year lows on Monday and the euro was under pressure as investors sought safety due to worries about slowing global growth.

Data on Friday showed that the euro zone inflation rose to another record, adding to the case for the European Central Bank to hike interest rates this month.

While the common currency was steady at $1.0435 on Monday, it is barely above May's five year trough of $1.0349 and highlights the market preference for dollars as gloom clouds the outlook.

The Australian and New Zealand dollars hit two-year lows on Friday and were not far from those levels early in the Asia session, with the Aussie down 0.3% to $0.6796 after falling to as low as $0.6764 on Friday. The kiwi fell by 0.1% to $0.6197.

Trade is likely to be lightened ahead of the Independence Day holiday in the United States.

Safety flows tend to favor the dollar, especially at the expense of trade and export-driven currencies when the world economy is weak. The dollar has gone up even as growth fears have tempered US rate hike expectations.

The US dollar index was at 105.100, a little less than last month's two-decade high of 105.790. The GDP Now forecast from the Atlanta Federal Reserve fell to an annualized 2.1% for the second quarter, implying that the country was already in a technical recession.

Carol Kong, a currency strategist at the Commonwealth Bank of Australia in Sydney, said that the Aussie and other commodity currencies, as well as the euro and sterling, will likely decline even more into the week, given markets are focused on the risk of a slowdown in the global economy.

The pound hit a two-week low of $1.1976 on Friday and last bought $1.2095.

Ahead of this week, Australia's central bank meets on Tuesday and investors are waiting for the publication of minutes from last month's Federal Reserve meeting and U.S. employment data on Friday.

The Aussie may not get much of a boost if that is delivered, as markets have priced in a 40 basis point bp hike in Australia.

The minutes of the June policy meeting of the Fed on Wednesday are almost certain to sound hawkish, given the committee's decision to hike rates by a super-sized 75 bps.

The market is pricing in an 85% chance of another hike of 75 basis points this month and rates at 3.25 - 3.5% by the end of the year before the cuts in 2023.

The dollar held Friday gains that brought it to its strongest level in years on the Thai baht, Indonesian rupiah and Singapore dollar against Asian currencies.

The Chinese yuan was steady at 6.7021 per dollar during the onshore session.