The "dollar king" reigns supreme in a world of slowing growth and European risks

LONDON (Reuters) – The dollar hit its highest level on Monday for nearly 17 months against a basket of major currencies. Investors looked for high yielding liquid assets in a context of fears of global growth and growing political risk in Italy and Great Britain.

Global equities fell 0.3% for the third consecutive day in the red, with the price of oil rising steadily, while initial gains in European equities collapsed amid growing fears for Italian lender Carige. whose shares were suspended after information reporting a capital hole.

While regulators promised to simplify stock buybacks, Asian markets generally weakened after Wall Street closed on Friday. Transactions in New York are likely to be weakened by Veterans Day, and futures indicate that the S & P500 and Dow Jones are down, but Nasdaq futures are marginal.

Investors worry about signs of slowing growth in the world, but especially in China, where online trading giant Alibaba has been the latest to sound the alarm bell. Annual growth in its turnover was the slowest of all time during its Singles Day shopping day.

Many also believe that US President Donald Trump could put more pressure on trade, further harming the Chinese economy.

All this, combined with European political risks, conspired to push the dollar higher by 0.5% against a basket of currencies by 12:30 GMT.

"The US dollar has returned," said Valentin Marinov, head of the G10 foreign exchange strategy at Credit Agricole, adding that investors had retreated into the dollar after the US Federal Reserve meeting the week last confirming a tightening of rates.

"The euro and the pound are both affected by political risk and this worsens the underperformance against the dollar," Marinov said.

The pound lost more than one percent at one point, standing near a 10-day low reached earlier, while the euro, accounting for more than 50% of the pound. The dollar index, fell 0.7% to its lowest level since July 2017.

British Prime Minister Theresa May's strategy on Brexit has been attacked from all sides, increasing the risk that her exit plan from the European Union will be rejected by Parliament, pushing the UK into a potentially "chaotic" Brexit.

The opposition Labor party has said that if the May Brexit deal is rejected by parliament, it will press for national elections and possibly another referendum.

Latest Futures Data Shows Short Net Positions in Pounds Have Their Weekliest Weekly Increase in a Month and a Half

Analysts at Deutsche Bank, however, predicted more suffering and said to their clients: "Given the upcoming parliamentary problems, the risk is not sufficiently taken into account by the price of the pound."

As for the euro area, Italy has until Tuesday to submit a revised budget to the EU, but its refusal so far to reduce the budget deficit opens the way for a conflict with Brussels.

Markets have also been frightened by reports that Banca Carige would need about 400 million euros (451 million USD) to fill a hole in its capital and the deposit protection fund of Italy could not fill that part.

This is fearing a banking crisis in the third economy of the euro area, reducing the yield of Italian bonds on Germany – risk premium related to Italian assets – above the psychological barrier of 300 basis points. Italian banks' shares fell by 1.2%.

Bernd Berg, global macro strategist at Woodman Asset Management, predicted that the euro would fall below the current US $ 1.12 below the $ 1.10 mark, as a new eurozone and angry Brexit and economic outlook divergent with a strong US economy compared to a weakening of the euro zone economy will cause additional pressure on sales. "

All this was good news for dollar bulls, which benefited from safe haven flows. Net long dollar positions of speculators reached their highest level since January 2016, according to calculations by Reuters and the Commodity Futures Trading Commission.

The other major movement is in commodities, where the Saudi Minister of Saudi Energy has announced that Riyadh could cut its crude oil supply by 500,000 barrels per day in December, an overall reduction of about 0 , 5%.

Brent is trading around $ 71.4 per dollar, the seven-month low touched last week.

But the slowdown in global growth could make cuts in supply a temporary solution to the drop in oil prices. Germany and Japan, two of the world's largest economies, are expected to experience a contraction in output in the coming days.