US$ slips after biggest weekly rise in a month

London

THE US dollar slipped on Monday, having notched up its biggest weekly gain in a month last week, as a rebound in risk appetite prompted investors to diversify away from their long US dollar bets which have grown rapidly in recent weeks. Outstanding US dollar bets are at their highest levels since early 2017 with latest weekly data showing yet another increase in positions as growing concerns about trade tensions and a rebound in US economic data fuelled demand for the greenback.

"What we are seeing now is some sort of a reversal in that trend as European economic data have shown some improvement while the US economy is displaying classic symptoms of a late cycle," fund manager Constantin Bolz of German-based wealth manager Portfolio Concepts said.

Against a basket of its rivals, the greenback fell 0.2 per cent to 94.60 after rising 0.7 per cent last week, its biggest weekly rise since mid-June. The US dollar's growing inverse correlation with global risk appetite has also fuelled a near 6 per cent rise in the greenback over the last three months. Monday's bounce in European stocks led by strong results from Deutsche Bank, snapped that trend.

A rebound in global risk appetite on Monday, despite some tepid Chinese economic data, has dampened fears about an escalating trade conflict between Beijing and Washington and boosted higher-yielding currencies. That reach for risk was evident in currency markets. The Swedish krona rallied half a per cent to 8.8330 kronor per US dollar despite home prices data showing a further cooling in price growth. The euro edged 0.2 per cent higher to US$1.1703 after weakening half a percent last week.

"This unexpected US exceptionalism had been one major obstacle for broader 2018 expectations of modest broad dollar index," JP Morgan strategists said in a note. But analysts worried that the US economy's outpeformance may be coming to a close. The yield differential between 10-

year US Treasury yields and two-year maturities tightened to 24 basis points, its lowest since August 2007. Narrowing spreads is taken as an indicator for a slowing economy. The risk of a further escalation in trade conflict and a softness in Chinese data has kept the US dollar supported with investors whittling down their positions in Asian currencies in favour of the euro and the Swiss franc. REUTERS