Dollar weakens vs yen as US economic worries, trade frictions intensify

The dollar eased on Thursday, sliding to fresh one-week lows against the euro and yen as investor anxiety deepened over fresh signs of slowing US economic growth and a broadening of global trade frictions.

The greenback fell overnight after data showed hiring by US private employers had cooled in September, the latest indicator that the Sino-US trade dispute is hurting the world's largest economy.

It remained wobbly in Asian hours, while stocks tumbled as investors grappled with the deepening global economic gloom.

“Markets are beginning to look at the US economy with a bit more concern,” said Han Tan, a Kuala Lumpur-based market analyst at brokerage FXTM.

“The fear now is that the manufacturing slowdown in the global economy is feeding back into the US as well,” he said.

“Bigger alarm bells would sound off if we started to see a bigger slowdown from US consumers,” Tan added, noting investors' attention would now turn to Friday's US jobs data for a fuller picture of the economy's health.

The dollar crossed 107 Japanese yen and touched a week low of 106.95 yen. It fell to $1.0964 per euro, though both moves were less than a tenth of a percentage point.

It held close to a one-week low against the New Zealand dollar at $0.6265 per kiwi and weakened a little against the beaten-up Australian dollar to $0.6715.

Adding to concerns, the US won approval on Wednesday to levy tariffs on $7.5 billion worth of European goods over illegal subsidies handed to Airbus, threatening to trigger a transatlantic trade war.

Futures pricing indicated a 73 per cent chance that the US Federal Reserve will reduce benchmark interest rates to support the economy at its next meeting later this month.

That is up from about 60 per cent a day earlier, but was not enough to drive a spirited flight from the dollar, which is also widely seen as a safety bet at times of economic or political uncertainty. The greenback held steady against a basket of currencies, just above 99 and not miles below the two year high 99.667 it hit on Tuesday.

“It seems like there's been a bit of a sea-change in market sentiment,” said Nick Twidale co-founder of Sydney-based trade finance provider Xchainge, though adding that the US still looked in better shape the Europe.

“I think overall (the dollar) will remain grinding higher while there's still a disparity between the US economy and the rest of the world.”

The next readings on global economic health will be European August retail sales and a German service sector survey due on Thursday, and September's US non-manufacturing ISM survey due at 1400 GMT.

The pound was steady at $1.2304 after fluctuating in a tight range as British Prime Minister Boris Johnson proposed an all-island regulatory zone in Ireland in his final pitch for a Brexit deal before the end of the month.

Sterling's outlook, however, remained uncertain after a cool response to the proposal from Brussels, leaving a no-deal exit from the European Union on Oct. 31 a real possibility.

In offshore trade, the Chinese yuan ticked up slightly to 7.1368 per dollar, with trade subdued as Chinese markets are closed until Monday for public holidays.