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Morale among German investors improved slightly in January, but
their assessment of the economy's current condition deteriorated
to a four-year low, a survey showed on Tuesday, sending mixed
signals for the growth outlook of Europe's largest economy.
That data comes on the heels of an overnight reduction in
Europe's growth forecasts by the IMF which trimmed its growth
projections in the euro zone to 1.6 percent in 2019 from 1.8
percent in 2018, 0.3 percentage point lower than what was
projected three months ago.
"The outlook for the euro has become a bit more cautious and
that is reflected in the positioning data," said Kamal Sharma,
director of G10 FX strategy at Bank of America Merrill Lynch.
The single currency <EUR=EBS> was down 0.1 percent at $1.1347,
its lowest since Jan. 4. It has weakened nearly 2 percent
against the dollar over the last two weeks.
While investors have turned bearish on the dollar at the end of
2018 citing weakening U.S. growth on the back of a fading fiscal
stimulus, markets have been ill prepared about how much the
slowdown in the United States and China would impact other
growth engines such as Europe.
Latest flows data from Bank of America Merrill Lynch shows real
money investors have been selling euros for the last five weeks
while hedge funds have also turned bearish recently.
Still, some market watchers say the dollar may also come under
pressure as the U.S. government shutdown begins to weigh on
domestic growth.
Morgan Stanley strategists believe that U.S. growth in the first
quarter is likely to fall below their forecast of an annual 2.2
percent, about half the 4.2 percent growth in 2018.
"We still think the dollar's gains may be overdone and the
European Central Bank might offer some guidance later this week
on when it will start to tighten monetary policy," said Manuel
Oliveri, a currency strategist at Credit Agricole in London.
On Monday, the dollar <.DXY> rose to 96.472, its highest level
since Jan. 4 and up more than 1.5 percent from a three-month low
earlier this month.
The dollar strengthened 0.3 percent versus the offshore yuan <CNH=D3>
to 6.8157. It has gained around 1 percent over the offshore yuan
in the past seven sessions.
The yen <JPY=EBS>, another safe-haven currency, was steady
against the dollar, fetching 109.64 in early trade. The Bank of
Japan is expected to leave policy unchanged at its Jan. 22-23
meeting. Analysts expect monetary policy to remain accommodative
in Japan this year.
(Reporting by Saikat Chatterjee; Editing by Larry King, William
Maclean)
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