The dollar had been actively bid over the last two trading sessions as risk appetite receded on fears over a global growth slowdown and the U.S.-Sino trade conflict.
The dollar index, a measure of its value versus six major peers, eased 0.1 percent to 96.62 on Thursday. The index lost 0.13 percent in the previous trading session.
Analysts believe the medium-term direction of the dollar will be decided by the monetary tightening path of the Federal Reserve.
The Fed is expected to announce its fourth rate hike of 2018 in December, but investors are beginning to question how many rate hikes the Fed can implement next year without risking a slowdown in the U.S., which has held up well so far even as borrowing costs have risen.
The poll also showed economists have increased the probability of a U.S. recession in the next two years to a median 35 percent.
· The Japanese yen changed hands at 113, relatively unchanged for the day, after weakening over the last two trading sessions versus the dollar.
Analysts expect dollar/yen to trade in the 111.5-114 range and move with the U.S. 10-year treasury bond yields.
While the Fed is on a monetary tightening path, the Bank of Japan looks set to maintain its ultra loose monetary policy for some time due to low growth and inflation. This interest rate differential between U.S. and Japanese bonds makes the dollar a more attractive bet than the yen.
· The euro gained 0.12 percent versus the dollar to trade at $1.1397. The single currency gained 0.1 percent on Wednesday despite the European Union rejecting Italy's fiscal plans for failing to comply with euro zone rules.
Traders were relieved after Italian Prime Minister Giuseppe Conte expressed concern about the government bond spread and pledged reforms.
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The European Commission — the EU's executive arm — said that Italy's 2019 draft budget does not comply with the EU's requirement that member states work to reduce their debt piles. As such, the Commission will now launch what's known as an "Excessive Deficit Procedure" that could lead to Italy being fined.
Italy's Deputy Prime Minister Matteo Salvini remained defiant after the news, saying he will talk to the Commission "politely, as always, but will carry on."
He said Italy would explain its structural reforms and investment plans to the EU. He said he hoped EU sanctions would be avoided and that if not, these would be "disrespectful" to Italians, Reuters reported.
· Juiced by tax cuts this year, the economy's performance peaked in the second quarter and is expected to increasingly lose steam in 2019, with growth slowing to a crawl and a recession looming.
That is one big reason the stock market has spiraled lower, as buyers rushed into Treasurys and yields on corporate debt snapped higher. Investors' views, in fact, may be even gloomier than those of economists.
Major firms this week have been releasing forecasts for next year, and both Goldman Sachs and J.P. Morgan see growth slowing to below 2 percent in the second half of 2019. But at the same time, the two firms expect the Federal Reserve to raise interest rates four times, while other economists believe the Fed may have to move at a slower pace.
· Economists point to a number of factors for the slower growth, but topping the list of scare factors for markets are those Fed interest rate hikes as well as the impact of tariffs and trade wars, should they continue. Economists do not foresee a recession next year, but by 2020, one seems more likely, some economists said.
· Japan’s industrial output likely rebounded in October after the previous month’s drop due to natural disasters, a Reuters poll showed, which would give encouragement that the economy could show growth this quarter.
Retail sales probably grew at faster annual pace than in September, reflecting a tight labor market and gradual wage growth, it showed.
· JP Morgan has cut its outlook for oil, predicting that Brent crude prices will average $73 a barrel in 2019 — down from the investment bank's previous forecast of $83.50 a barrel.
· Oil prices dipped on Thursday after U.S. crude inventories increased to their highest level since December 2017 amid concerns of an emerging global glut, although an expected supply cut by producer cartel OPEC prevented further drops.
U.S. West Texas Intermediate (WTI) crude futures, were at $53.38 per barrel at 0141 GMT, 25 cents, or 0.5 percent below their last settlement.
Front-month Brent crude oil futures were at $63.28 per barrel, down 20 cents, or 0.3 percent, from their last close.
U.S. commercial crude oil inventories rose by 4.9 million barrels to 446.91 million barrels last week, the Energy Information Administration (EIA) said in a weekly report on Wednesday. That was the highest level since December last year.
U.S. crude oil production remained at a record 11.7 million barrels per day (bpd), the EIA said.
Reference: Reuters, CNBC
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