Weak German data lifts dollar, sterling slips before Brexit vote

Kham | Reuters

The U.S. dollar rose against the euro on Tuesday after data showed Germany's economy slowed in 2018, and sterling slipped ahead of a parliamentary vote on the United Kingdom's withdrawal from the European Union.

Growth in Europe's largest economy slowed to 1.5 percent in 2018, the German government reported on Tuesday. That was the slowest rate of GDP growth in five years. Investors are also worried about slower growth around the world due to trade disputes driven by U.S. President Donald Trump's policies.

Against the dollar, the euro dropped to a five-day low of $1.141 after the data was released. In mid-morning trade, the single currency had retraced some of its losses, and was last at $1.1385.

Analysts said that while the German economic figures were in line with expectations, the gloomy picture added to growing doubts about whether the European Central Bank will raise interest rates at all in 2019.

Investors are also closely watching sterling with British Prime Minister Theresa May widely expected to lose a vote in parliament later Tuesday on her Brexit deal.

"The market is anticipating the UK parliamentary vote on the withdrawal agreement," said Shahab Jalinoos, head of foreign exchange strategy at Credit Suisse in New York. "The vote is obviously essential to Sterling, but the event is big enough to draw global attention."

Other analysts expect the pound will take a major beating if May loses the vote by a wide margin since it could push Britain closer to a chaotic exit from the EU.

Sterling traded down 1.05 percent against the dollar at $1.272.

The greenback gave back some gains after the U.S. Labor Department reported that producer prices fell in December by the most in more than two years. The latest sign of tame U.S. inflation was not enough to reverse the overall upwards trajectory of the dollar on the day.

Although the U.S. government shutdown continued, "the impact is still too difficult to measure, especially in foreign exchange terms," said Jalinoos.

A shock contraction in Chinese trade and worries over the U.S. economy losing stream have bred fears of a global downturn that could see the Federal Reserve refrain from tightening monetary policy this year.