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Trade worries push US dollar to 1-week high
THE US dollar consolidated near a one-week high against a basket of rivals on Monday as tensions around global trade negotiations fuelled demand for the greenback, though concerns about capital flows checked gains.
US President Donald Trump said on Saturday there was no need to keep Canada in the North American Free Trade Agreement and warned Congress not to meddle with the trade talks or he would terminate the trilateral pact altogether.
"Trade tensions are broadly supporting the dollar, but the market is hardly very conducive of risk," said Viraj Patel, an FX strategist at ING in London. Traders bought the dollar against the British pound and the Canadian dollar. The dollar's status as the chief reserve currency makes the US currency the primary beneficiary of concern over trade conflicts.
But gains were limited as analysts pointed out the quality of capital inflows into US assets has worsened noticeably in recent weeks, suggesting the dollar's rise may be short-lived.
"The quality of longer-term sticky flows into the dollar has started to weaken noticeably and we believe the dollar's gains may be coming to a close," said Hans Redeker, global head of foreign exchange strategy at Morgan Stanley based in London.
The dollar edged up to 95.22, nearing its highest level since Aug 27 against a basket of its rivals. It has gained nearly 7 per cent since mid-April when trade tensions first arose. On a positioning basis, markets remained firmly in the stronger dollar camp with net outstanding positions holding near their highest levels since January, 2017.
But gains were muted - safe-haven currencies such as the Swiss franc and the Japanese yen were supported against higher-yielding rivals.
The euro weakened 0.1 per cent against the dollar after eurozone manufacturing growth slowed to a near two-year low in August as optimism dwindled amid growing fears of an escalating global trade war, a survey showed.
Sterling was the standout loser of the day as new concerns about Brexit negotiations and weak UK manufacturing survey data combined to push the British currency down 0.6 per cent. Michel Barnier, the European Union's chief Brexit negotiator, said he is "strongly opposed" to the British government's proposals on future trade ties after it leaves the EU.
The pound fell 0.4 per cent to US$1.29 and weakened 0.3 per cent against the euro to 89.80 pence. REUTERS