Investing.com - The U.S. dollar edged higher in early European trade Wednesday, as traders sought out this safe haven after disappointing Chinese trade data hit sentiment.
At 03:05 ET (07:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 104.162, not far removed from the 2½-month peak of 104.70 seen at the end of May.
The slump in exports is indicative of slowing economic growth in Europe and the U.S., China’s primary markets for locally produced goods, and this has boosted demand for the dollar, a safe haven in times of stress.
The dollar has also benefited from the turmoil in the cryptocurrency markets, following the crackdown by the Securities and Exchange Commission on the crypto industry.
Gains are limited though as traders await next week’s Federal Reserve policy-setting meeting amid uncertainty of its next move.
Money markets are pricing in a roughly 19% chance that the U.S. central bank will raise rates by 25 basis points next week, compared to an over 60% chance a week ago, according to the CME FedWatch tool, after weak U.S. services activity data.
“A 25bp BoC rate hike … (now priced with a 43% probability) would probably cause ripples across core bond markets around the world and could keep the dollar bid on the view that the Fed might be closer to hiking than first thought,” said analysts at ING, in a note.
Elsewhere, EUR/USD fell 0.2% to 1.0676 after data showed that German industrial production rose slightly less than expected in April, increasing by 0.3% on the previous month, compared with the expected increase of 0.6%.
The ECB hasn’t finished increasing borrowing costs as core inflation proves stubborn, Executive Board member Isabel Schnabel said in an interview with De Tijd.
“We have more ground to cover,” she was quoted as saying in the newspaper. “It will depend on the incoming data by how much more rates will have to increase.”