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US dollar dips as spotlight remains on trade dispute

London

THE US dollar was a touch weaker against other major currencies on Thursday, with investors fixated on the latest developments in a bitter 16-month long trade dispute between the United States and China that has dealt a blow to the world economy.

China has invited top US trade negotiators for a new round of face-to-face talks in Beijing amid continued efforts to strike at least a limited deal, The Wall Street Journal reported on Thursday, citing unnamed sources.

This week has seen a hardening of rhetoric from both sides, prompting investors to scale back optimism that a so-called "phase one" agreement could be signed soon.

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The greenback, which has behaved as a safe-haven currency for most of this year, edged up on Wednesday after a report that a deal could be postponed till next year.

At 1120 GMT, the US dollar index, which measures the US dollar's value against a basket of currencies, was down 0.1 per cent at 97.82 - nearing two-week lows hit on Monday of around 97.68.

It was 0.1 per cent softer versus the euro on the day at US$1.10835 and 0.15 per cent weaker against sterling at US$1.2940.

"We're really just waiting to see what happens on the trade front," said Stephen Gallo, European head of currency strategy at BMO Financial Group in London.

"The shift in sentiment is warranted, a lot of good news had been in the price and some of that has been taken out." Mr Gallo said the outlook for the dollar had not shifted that much moving into 2020, with currency markets likely to remain beholden to trade, Brexit and political headlines.

Strategists at Citigroup expect the US dollar index to weaken by more than 2 per cent over the next year to around 94.

For others, a pause in US Federal Reserve interest-rate cuts was positive for the US dollar outlook.

"Over the past year or so there have been times where negative headlines on trade have been negative for the dollar because they have reinforced Fed easing expectations," said Fritz Louw, a currency strategist at MUFG.

"But if you don't expect the Fed to cut rates further, the negative trade sentiment impact would probably drive the dollar a bit higher from a safe-haven perspective." Minutes released on Wednesday showed that the Fed, which hit pause in its easing cycle following a rate cut in October, is in no hurry to reassess the path of interest rates.

The European Central Bank will release the minutes from its October meeting later on Thursday, with little significant impact on the euro expected. REUTERS