By Peter Nurse
Investing.com – The U.S. dollar edged lower in early European trade Thursday, continuing its recent selloff after weak U.S. economic data hinted at an upcoming recession, providing more arguments for the Federal Reserve to slow down its aggressive interest rate increases.
At 03:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 101.965, just above the seven-month low of 101.77 seen earlier in the week.
The dollar has fallen by more than 10% since peaking in late September, after a rally sparked by aggressive tightening throughout much of 2022.
This selling continued Wednesday after U.S. retail sales fell by the most in a year in December and manufacturing output recorded its biggest drop in nearly two years, stoking fears that the world’s largest economy is headed for a recession.
“The market’s scrutiny over the U.S. economic outlook has grown exponentially since the ISM service report pointed to an imminent recession: expect more pain for the dollar should fresh signs of a slowdown emerge now that the U.S. data calendar is picking up again,” said analysts at ING, in a note.
USD/JPY dropped 0.5% to 128.26, with the yen rebounding to a degree from its sharp losses after the Bank of Japan maintained the range of fluctuation in its yield curve control policy, confounding expectations for a further adjustment in the rate.
However, speculation that rising inflation will push the bank into eventually altering this ultra-loose policy saw the yen recover sharply.
Elsewhere, EUR/USD rose 0.3% to 1.0819, remaining near 9-month highs, with European Central Bank officials continuing to insist on the need for significant interest rate increases.
Klaas Knot, the current President of the Dutch central bank, continued the theme Thursday.
“I do think that at least until mid year, we will be in tightening mode,” Knot told CNBC in an interview, as underlying inflation in the Eurozone shows no signs of abating.
GBP/USD fell 0.1% to 1.2321, dropping further away from the previous session’s one-month high of 1.2435, while AUD/USD fell 0.7% to 0.6894, after data showed that the country’s job market unexpectedly cooled from the record high in December.
NZD/USD fell 0.6% to 0.6399 after the news that Prime Minister Jacinda Ardern will resign by early February.