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Dollar under pressure

The dollar rose on Wednesday but was under pressure as the inversion in part of the Treasury yield curve caused fears of a possible recession in the United States.

The greenback has enjoyed months of unrivaled performance against its peers, but this may be undermined by growing worries about slowing US growth.

These concerns on Tuesday saw two-year yields increasing above those of longer-dated 5-year notes for the first time in more than a decade.

The so-called “inversion” of the yield curve to many investors sounds worrying about the looming economic slowdown in the United States.

“In the initial phase of the inversion of the yield curve markets are worried and react more aggressively to weak data than to strong data,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“I think the dollar can be in correction-mode in a yield-curve inversion environment,” he added.

Against a basket of six competitors, the dollar rose 0.1% to 97.103, trimming this week’s losses to 0.2%. It was 0.6% off a 17-month peak of 97.693 hit on Nov. 12.

The last dollar weakness is against the backdrop of a temporary truce in the US-China trade conflict, scheduled over the weekend, which has bolstered investors’ confidence in risky currencies against the safe-haven greenback.

The dollar is under pressure since Federal Reserve Chairman Jerome Powell said last Wednesday that US interest rates are close to neutral levels, which markets interpreted as a signal for slowing in the pace of rate hikes.

The euro edged down 0.1% to $1.1328.

Without a resolution on the European Union’s dispute with Italy on its proposed budget or the euro-specific positive trends, euro/dollar is likely to trade in the range of $1.12 to $1.16, analysts at Commerzbank said.

 

Source: Reuters