Dollar firm on safe-haven demand as markets fret over China, banks

The dollar remained on the front foot in Asia on Wednesday, holding on to overnight gains against major peers as investors sought the safety of the currency amid risks from a floundering Chinese economy and downgrades for U.S. banks.

The risk-sensitive Australian and New Zealand dollars wallowed near multi-month lows. The Chinese yuan, however, got some respite after the central bank set a stronger official rate than expected, signalling its discomfort with recent declines.

The U.S. dollar index – which measures the currency against the euro, yen and four other counterparts – was little changed at 102.50 in the Asian morning, following a 0.47% rise in the previous session.

Worries about the global economy flared again after data on Tuesday showed Chinese imports and exports contracting faster than expected in July.

Data on Wednesday showed China’s consumer prices fell for the first time in more than two years in July, fanning deflation fears, although the decline of 0.3% was slightly less than forecast in a Reuters poll.

Concerns about U.S. banks added to the risk-averse sentiment, after Moody’s cut credit ratings of several small to mid-sized U.S. banks and said it may downgrade some of the nation’s biggest lenders, including Bank of New York Mellon and US Bancorp. Rome also caused a commotion by setting a one-off 40% tax on Italian bank profits.

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