U.S. Markets

Dollar gains as euro zone growth forecast cut

NEW YORK (Reuters) - The U.S. dollar rose against the euro on Thursday amid growing worries about the deteriorating growth outlook for the euro zone area, but slipped against the safe-haven yen over renewed concerns over trade tensions between United States and China.

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The European Commission sharply cut its forecasts for euro zone economic growth this year and next because it expects the bloc’s largest countries to be held back by global trade tensions and domestic challenges.

The euro was 0.11 percent lower against the greenback, on pace for its fourth session of losses.

It dropped earlier in the session after German industrial output unexpectedly fell in December.

Global trade tensions and growing public debt are hastening a slowdown in the largest countries of the bloc, complicating the European Central Bank’s plans for an interest rate hike this year and weakening the single currency.

“The report is just basically outlining what everybody now is very well aware of, that there is a marked slowdown,” said Alfonso Esparza, senior currency analyst at OANDA in Toronto.

“Everything is sort of compounding in this narrative that the central bank will probably not do anything for the rest of the year,” he said.

The dollar index, which tracks the greenback versus the euro, yen, British pound and three other currencies, was up 0.12 percent at 96.505, on pace for its sixth session of gains.

The number of Americans filing applications for unemployment benefits dropped from near a 1-1/2-year high last week, pointing to sustained labor market strength that should continue to underpin the U.S. economy.

The dollar’s recent gains come despite the Federal Reserve’s dovish shift on interest rates last week.

The greenback weakened a little on news U.S. President Donald Trump and Chinese President Xi Jinping are unlikely to meet before a March 1 deadline set by their governments to reach a trade deal.

Against the yen, which tends to benefit during geopolitical or financial stress as Japan is the world’s biggest creditor nation, the greenback was 0.11 percent lower.

The Australian dollar steadied on Thursday, a day after Australia’s central bank’s signaled a shift from its long-standing tightening bias and sent the Aussie down 1.8 percent.

Sterling advanced 0.19 percent in a volatile trading session.

The pound fell sharply after the Bank of England said Britain faced its weakest economic growth in a decade due to uncertainty about Brexit, but recovered on hopes that Britain will make some progress in coming days in negotiations on its departure from the European Union.

The Canadian dollar weakened to its lowest in nearly two weeks against the greenback amid fears of a global slowdown and ahead of domestic jobs data on Friday.

Reporting by Saqib Iqbal Ahmed; Editing by Bernadette Baum and Susan Thomas