US dollar slides from 7-month peak on weak Chinese trade data

[NEW YORK] The US dollar tumbled from a seven-month high on Thursday, as risk appetite took a turn for the worse after soft Chinese trade data spooked a market that is expecting an interest rate increase from the Federal Reserve by the end of the year.

The US dollar index posted its largest daily percentage loss in a month.

The US currency also fell from a more than two-month high against the yen and Swiss franc, two safe-haven currencies that benefit in times of political or financial stress.

"A significant slowdown in Chinese growth could once again foil the plans of US authorities to stabilise monetary policy," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

"Still it may be premature to consider such a possibility, but today's news certainly sets the stage for a deeper correction in the dollar," Mr Schlossberg added.

Exports from China, the world's second largest economy, fell 5.6 per cent in yuan terms in September from a year earlier and 10 per cent in US dollars.

The US dollar has gained more than two per cent so far this month against a basket of currencies, boosted by US rate hike expectations. Investors have priced in a roughly 70 per cent chance the Fed would nudge rates higher at its December policy meeting, a prospect reinforced by Wednesday's release of the last Fed monetary policy meeting minutes.

Minutes of the Fed's September meeting showed that the Federal Open Market Committee was deeply divided over the timing of the next interest rate hike, as several members agreed the Fed should raise rates in the near term if US data continued to strengthen.

That said, Christopher Vecchio, currency analyst at DailyFX.com in New York pointed out the Fed "maybe sounding hawkish on the front end, but increasingly dovish on the long end."

Mr Vecchio believes US productivity growth remains low and "with material labour market slack remaining, the US may be stuck in a period of lower growth".

That should cap the US dollar's upside in the medium to long term.

In late trading, the US dollar index fell 0.4 per cent to 97.538 , after notching a seven-month peak earlier in the session.

The US dollar was last down 0.5 per cent against the yen at 103.61 yen, after hitting its strongest level since late July.

The US currency also fell from 2-1/2 month peaks versus the Swiss franc and last changed hands at 0.9863 franc, down 0.4 per cent.

The euro fell briefly below US$1.10 for the first time since July, but quickly recovered to trade 0.4 per cent higher on the day at US$1.1052.

REUTERS