December 20, 2018 / 9:13 AM / 4 months ago

FOREX-Dollar slips towards a 10-day low on growth concerns

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* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Dec 20 (Reuters) - The dollar fell towards a 10-day low on Thursday against its rivals as concerns grew the United States may be heading for a sharp economic slowdown next year despite the Federal Reserve raising interest rates for the fourth time in a year.

Although U.S. policymakers have said they may raise interest rates three times by early 2020, the U.S. bond yield curve — a widely considered indicator of future recessions — flattened to 10 basis points and just a shade above a 11-year low set earlier this month.

An inversion of the bond yield curve is considered a sign of economic recession with longer-term yields falling below shorter-dated maturities and those concerns triggered a global selloff in risky assets such as stocks and high yielding currencies like the New Zealand dollar.

“We are seeing some messy markets in currencies this morning and the dollar is struggling to gain traction after the Fed decision,” said Alvin Tan, a currency strategist at Societe Generale in London.

The dollar fell 0.4 percent against its rivals to 96.68 and within a whisker of a 9-day low of 96.554 hit in the previous session.

Indeed, while the Fed’s ‘dot plots’ now signal two, instead of three, rate hikes for next year, the market is unconvinced and is barely pricing in one increase in a reflection of heightened market concerns of the state of the global economy.

While the Fed raised interest rates by a quarter point, China’s central bank rolled out a policy tool to spur lending to small and private firms in a move that some analysts termed as equivalent to a targeted rate cut.

The Japanese yen advanced half a percent, changing hands at 111.92 on the dollar and poised for fifth straight day of gains. In a widely expected decision, the Bank of Japan kept rates steady, maintaining its ultra-loose monetary settings.

The euro led gainers in London trading with the single currency advancing nearly half a percent against the dollar at $1.1428.

The single currency was supported by news Italy had struck a deal with the European Commission over its contested 2019 budget and some solid trade data this week.

Sterling gained a third of a percent to $1.2658. The Bank of England is due to hold its final policy meeting of the year on Thursday, where markets expect the central bank to stay on hold.

Elsewhere, Sweden’s currency jumped more than one percent against the dollar on Thursday after the central bank raised interest rates for the first time in more than seven years.

Reporting by Saikat Chatterjee; Additional reporting by Vatsal Srivastava in SINGAPORE; Editing by Keith Weir

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