US dollar near 7-week lows; commodity units advance

London

THE US dollar neared a seven-week low against a basket of other currencies on Wednesday, while commodity currencies advanced on relief that the latest round of tariffs announced by China and the United States were not as harsh as the market expected.

The greenback has gained nearly 6 per cent since concerns of trade wars shot into the spotlight as markets bet that a strong US economy and safe-haven demand for the greenback would push the US dollar higher. But price action this week suggested that investors are growing cautious of pushing the US dollar higher after recent data such as US inflation last week have indicated some softness.

Against a basket of other currencies, the US dollar drifted 0.1 per cent down to a low of 94.317, just above a two-month low of 94.308 hit in the previous session. While long dollar positions have dropped slightly last week, they still remain near one-year highs, according to the latest data.

Though risk appetite was broadly buoyant, the euro struggled to advance above the US$1.17 line as a rise in Italian bond yields on budget concerns prompted investors to trade broad market ranges.

Risk appetite held up across markets. Emerging-market currencies firmed, led by the Indian rupee after China said it won't retaliate with competitive currency devaluations.

China and the US plunged deeper into a trade war after President Donald Trump levied tariffs on US$200 billion worth of Chinese goods. Beijing retaliated with duties on US$60 billion worth of US goods. But Washington's new duties were set at 10 per cent for now, before rising to 25 per cent by the end of 2018, rather than an outright 25 per cent.

Against the yen, the US dollar rose to its highest since July 20 at 112.42 yen after the Bank of Japan left interest rates unchanged.

Commodity-linked currencies extended their gains, with the Australian dollar rising to its highest in more than three weeks at US$0.7255.

The renminbi gained for a third day, while stocks finished in the black after Premier Li Keqiang said Beijing will not engage in competitive currency devaluations.

Sterling held firm on hopes about progress towards a Brexit deal ahead of an informal European Union summit in Salzburg on Wednesday and Thursday and after UK inflation data rose. The pound hit a high of US$1.3175, its highest level in almost eight weeks and last stood flat at US$1.3169. It hit a seven-week high of 0.8865 pound per euro. REUTERS