SINGAPORE/LONDON: The dollar held near a two-year high against a group of peers on Friday as investors bet the gap between growth in the U.S. and elsewhere will get wider, and Chinese blue chips suffered their biggest weekly fall since 2022.
The dollar index, which tracks the currency against a basket of six other currencies, hit its highest since November 2022 on Thursday, and the euro fell to $1.02248, also its lowest since 2022. The pound and Japanese yen were also at multi-month lows.
The euro was last slightly firmer at $1.0280, as was the pound at $1.2392, but the dollar's continued strength dominated the market mood.
The U.S. currency rallied late last year as investors bet President-elect Donald Trump's policies would drive growth and inflation, meaning fewer further rate cuts from the Federal Reserve and higher yields on U.S. Treasuries, when European central banks are set to keep cutting rates.
While U.S. Treasuries yields have come off their late December highs - the benchmark 10-year Treasury yield was last at 4.549%, down 2 basis points on the day - the dollar has kept climbing on growth concerns elsewhere.
"Aside from the implications of expected U.S. protectionism under Trump, we think pressure is being added by the rise in (gas prices) caused by Ukraine’s pipeline shutdown," said Francesco Pesole, currency analyst at ING.
"The pound was the worst performer yesterday, and it is probably not a coincidence that GBP is the most negatively correlated with gas in the G10," he added.
Wholesale gas prices in Europe are around their highest in over a year, with temperatures falling, lower levels of gas in storage, and the expiry of a decades-long deal for Russia to supply gas to Europe via Ukraine.
That is an added headwind for European stocks, which were down 0.3% on Friday, reversing gains from the previous day, though oil and gas shares gained.
Friday's fall in European stocks was in part a catch-up with a late decline on Thursday in the U.S., where benchmarks ended broadly lower. Shares of Tesla sank 6.1% after the company reported its first annual drop in deliveries.
S&P and Nasdaq futures were both up around 0.4% on Friday however.
"It’s been a tough period for equities around the turn of the year, but strange things can happen in illiquid markets," said Ben Bennett, Asia-Pacific investment strategist at Legal and General Investment Management.
"I don’t think we should extrapolate this performance. That said, a stronger dollar and higher bond yields will weigh on sentiment going forward and equity investors will be hoping this changes soon."
CHINA WORRIES
Growth concerns in China are also near the top of investors' minds. The country's blue chip index shed 5.2% this week, its biggest weekly loss since October 2022.
In addition, China's yuan slid past the 7.3 per dollar technical threshold to a 14-month low, on a confluence of crumbling Chinese yields, rate cut expectations in the face of a strong U.S. dollar and the threat of tariffs from the incoming Trump administration.
The fall in yields, as investors seek the safety of government bonds, has been steep. Ten-year and 30-year government bond yields each weakened around 3 basis points to touch record lows.
An announcement from China it will sharply increase funding from ultra-long treasury bonds in 2025 to spur business investment and consumer-boosting initiatives, did little to boost the mood.
Despite political turmoil in South Korea, shares there rose after five sessions of declines, as the country's finance minister, who was last month appointed acting president, said he remained committed to stabilising the country's financial markets.
In commodities, Brent crude oil futures eased 0.33% to $75.67 a barrel and U.S. crude was down 0.45% at $72.8.
Gold was steady at $2,655 per ounce, after a 27% rise in 2024, its strongest annual performance since 2010. - Reuters
