© Reuters.
Investing.com – The US dollar weakened in early European trade on Thursday ahead of the release of key US growth data, amid concerns about banking contagion risks, a slowing economy and a debt ceiling standoff.
At 03:15 EST (07:15 GMT), the dollar, which measures the greenback against a basket of six other currencies, was trading down 0.1% at 101.162, adding to overnight’s 0.4% decline, when It touched nearly a two-week low of 101.00.
The dollar continued to fall on Thursday, as the mood surrounding the currency did not appear to be helped by depositor confidence First Republic Bank (NYSE:) after revealing $100 billion in customer withdrawals last month.
Its shares fell 30% on Wednesday, adding to similar losses in the previous session, raising questions about its long-term viability as well as the extent of future lending from similar US regional lenders if they choose to hoard cash.
Concerns that lower lending will stifle further economic activity add to the slowdown in US economic growth as a result of the Fed’s aggressive monetary tightening to combat the rally.
First-quarter data in the US, due later in the session, is expected to show growth eased to 2.0% for the first three months of the year, from 2.6% in the previous quarter.
It is likely to raise interest rates by another 25 basis points next week, but expectations are growing that this will mark the peak, as rates are set to start falling in the second half of the year.
“The dollar hasn’t really correlated with a cautious repricing of the Fed’s rate outlook, with rate cut expectations rising steadily since the end of last week,” ING analysts said in a note.
US politicians also continue to struggle to agree on whether to raise the country’s $31.4 trillion debt ceiling, which has pushed US sovereign default swap spreads higher as investors hedge against default.
One of the main beneficiaries of this dollar weakness was the Euro, which rose 0.1% to 1.1046, retreating towards an overnight peak of 1.1096, the highest level since April last year.
German consumer sentiment rose on Wednesday, with a forward-looking rise for the seventh consecutive increase, amid signs that the eurozone’s largest economy is poised to escape recession this year.
The central bank is also expected to raise interest rates next week, but with the European economy showing signs of recovery and the region’s banking sector seen as more resilient, the central bank is likely to continue raising interest rates in the summer, supporting the single currency.
It fell 0.1 percent to 1.2463, and rose 0.4 percent to 0.6623, while it rose to 133.71 before Friday’s meeting.
New Bank of Japan Governor Kazuo Ueda has indicated that the bank will largely maintain its hawkish stance in the near term, although higher inflation and wage growth could spur some tightening later this year.
It rose 0.2% to 19.4304 ahead of a policy-setting meeting by the Central Bank of Turkey, with policymakers expected to maintain the benchmark interest rate at 8.5% for a second month.