NEW YORK: The US dollar climbed against the euro and sterling on Wednesday, starting the new year on a strong footing, but fell against the safe-haven Japanese yen as investors remained wary of slowing global growth and volatile equity markets.

The euro fell 0.9 per cent against the US dollar, following weak manufacturing data from Spain, France, Italy, and Germany.

“Data out of the euro area this morning was generally on the softer side,” said Eric Viloria, FX strategist at Credit Agricole in New York.

Factory activity weakened across much of Europe and Asia in December as the US-China trade war and a slowdown in demand hit production in many economies, offering little reason for optimism as the new year began.

Traders expect the single currency to remain under pressure as both growth and inflation in the eurozone remain below the European Central Bank’s expectations.

Sterling fell 1.1pc, partially reversing some of the gains notched earlier this week, as strong factory surveys failed to dispel growing concerns over Brexit negotiations.

While the dollar was relatively stable going into the end of 2018, a flagging equity market boom, waning cash repatriation by US companies, and the possibility that the US Federal Reserve will not raise interest rates as many times as it previously signalled now pose challenges for the greenback.

In a cautious start to the year, traders in the currency markets punished perceived riskier currencies such as the Australian dollar and the euro, while lifting the yen to a fresh seven-month high versus the dollar.

Against the yen, which tends to benefit during geopolitical or financial stress as Japan is the world’s biggest creditor nation, the dollar was 0.36pc lower.

China’s factory activity contracted for the first time in 19 months in December as domestic and export orders continued to weaken, a private survey showed.

The Australian dollar, whose fortunes largely depend on the Chinese economy to which Australia sends a bulk of its commodities, fell 0.9pc.

Published in Dawn, January 3rd, 2019