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Dollar Extends Gains on Shutdown Deal, Europe Woes

Investing.com - The U.S. dollar rose to a new eight-week high in early trade in Europe Tuesday, as news of the deal to avert a fresh government shutdown was overshadowed by continued concerns about the U.S.-China trade war and more bearish talk out of Europe.

The US Dollar Index, which tracks the greenback against a basket of major currencies, rose for a ninth straight day after German central bank chief Jens Weidmann warned in a speech that the euro zone was still not "crisis-proof".

With one of the most obvious political risks to the U.S. economy lifted, the dollar remains the major currency best supported by short-term growth and interest-rate dynamics. The euro, British pound and yen by contrast are all struggling to develop any kind of momentum, given the problems in their home economies.

“We assess the risks of a ‘technical’ recession (in the euro zone) at about one in three,” said IHS Markit’s chief European economist Ken Wattret in a research note.

However, he said that “a severe recession remains unlikely, absent the usual triggers, including policy tightening and financial stress.”

The pound slid to a new three-week low overnight, extending the losses it made after a raft of data showing the U.K. economy close to stalling as the deadline to leave the European Union approaches.

However, it recovered some of its losses early Tuesday to trade at $1.2871.

The Swedish krona will be in focus later Tuesday, with the market waiting to see whether the Riksbank still believes it can raise interest rates this year. The krona has lost 3% against the so far this year as the economic outlook has worsened, and it’s now not far from the 10-year low it hit in January.

Elsewhere the Chinese yuan rebounded a little after its drop on Monday, while the USD/JPY pair hit a new high for 2019 of 110.66 before retracing to 110.58.

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