US dollar boosted by trade deal optimism

London

THE US dollar pushed higher on Wednesday and flirted with the US$1.10 level against the euro, boosted by yet more talk of a deal to resolve the US-China trade dispute, while volatility in major currencies remained severely suppressed.

The greenback, which this week has risen in line with the more positive tone in trade negotiations, also increased versus the yen.

Wednesday sees little new data released in the eurozone but some revisions in the United States ahead of Thursday's Thanksgiving holiday.

"Everything all told, the US data is more likely to support the dollar, so that EUR-USD might well drop below the US$1.10 mark again today," Commerzbank analysts said in a note.

Euro/US dollar volatility remains at near record low levels and the currency pair is largely stuck in tight trading ranges in the absence of major catalysts such as monetary policy shifts. Andreas Larsen, an FX strategist at Nordea, also noted on Twitter that one-day realised volatility in euro/US dollar on Tuesday hit a more than 20-year low.

One and three-month implied volatility - a gauge of expected price swings - in euro/US dollar on Tuesday fell to their lowest level on record, indicating that investors do not expect significant movement in the coming months.

While investors are taking US President Donald Trump at his word that Washington was in the "final throes" of work on a trade deal with Beijing, many have struggled to decide what it means for currencies.

Many analysts say investors cannot make up their minds on whether trade optimism and a buoyant risk-on mood is a positive for the safe-haven US dollar, especially as the Federal Reserve has been cutting interest rates.

"We've been risk-on for a few days now and euro-dollar is down at US$1.10. They've bought the dollar whereas at times in the past they've done the reverse," said Neil Mellor, an analyst at BNY Mellon.

The euro slipped 0.1 per cent to US$1.1004, close to a two-week low of US$1.0989.

Against a basket of currencies, the US dollar index rose 0.1 per cent to 98.322.

The yen, usually bought when investors turn nervous, has faltered in recent sessions as equity markets soared.

The US dollar gained another 0.1 per cent to 109.13 yen on Wednesday.

Sweden's hard-hit crown, which is closely linked to the outlook for global growth and trade, has rebounded in recent weeks.

The crown briefly hit a new four-month high of 10.549 crowns per euro, although against the stronger dollar it was down slightly. REUTERS