By Peter Nurse
Investing.com - The U.S. dollar edged higher in early European trade Wednesday, as traders sought refuge in this safe haven given the ongoing concerns of a global economic slowdown.
At 02:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 104.410, following a rally of around 0.5% overnight.
The dollar gained on Tuesday after data showed U.S. consumer confidence dropped to a 16-month low in June on fears high inflation could cause the U.S. economy to slow significantly in the second half of the year.
Adding to the buck’s strength was euro weakness after European Central Bank chief Christine Lagarde offered no fresh insight on the path for European interest rates or the makeup of the new anti-fragmentation tool at the central bank's annual forum.
EUR/USD fell 0.3% to 1.0490, falling to levels not seen for almost two weeks, even after the state of North Rhine-Westphalia, Germany's largest state by population, said consumer prices fell by 0.1% on the month in June, bringing the annual rate of inflation down to 7.5% from 8.1%.
The ECB is widely expected to follow its global peers by raising interest rates in July for the first time in a decade to try to cool soaring inflation, but there are concerns this could lead to a significant increase of borrowing costs in the eurozone’s more indebted countries.
Morgan Stanley is now looking for the eurozone to fall into a mild recession in the fourth quarter of this year, contracting for two quarters before resuming growth in the second quarter of next year driven by an increase in investment.
President Christine Lagarde will appear at a panel discussion later Wednesday, along with Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey, and any comments over the trade-off between curbing inflation and trying to ensure a soft-landing for the global economy will be studied closely.
“Lagarde is expected to provide some colour on how seriously the ECB is considering a 50bp rate hike in September in light of recent activity surveys pointing at a rapidly deteriorating picture for the eurozone,” said analysts at ING, in a note.
USD/CNY traded largely flat at 6.7074, with the yuan receiving some demand after China announced an easing of its quarantine requirements for inbound passengers, in what could be seen as the country’s biggest relaxation so far of its "zero COVID" strategy.
GBP/USD edged higher to 1.2187, USD/JPY dropped 0.1% to 136.04, while the risk sensitive AUD/USD dropped 0.4% to 0.6882.