US dollar falls as bets on rate cuts grow

London

THE US dollar fell on Wednesday as rising trade tensions between Washington and Beijing and growing bets on a US interest rate cut sapped investor demand for the currency.

Against a basket of other currencies, the US dollar edged 0.1 per cent lower to 96.64 and just above a two-and-a-half-month low of 96.46 reached last week.

The US dollar has suffered a setback after the latest escalation of the US-China trade, which analysts fear could tip the global economy into recession.

Those fears have grown as recent data have pointed to a global economic slowdown. Chinese factory inflation slowed in May and Fed officials have become increasingly cautious. That has fuelled expectations of US rate cuts, a shift from a few months.

A Fed watch tool by CME assigns a 18 per cent probability of a US rate cut next week and a 68 per cent probability of a cut in July.

"This is a perfect storm for the dollar, and that is also undermining risk appetite broadly in the market," said Ricardo Evangelista, a senior analyst at ActivTrades in London.

The US dollar slipped as much as 0.2 per cent against the pound , taking its losses to nearly one per cent so far this month.

It also weakened against the Hong Kong dollar, which rose towards the midpoint of a daily trading range as bond auctions and large listings in the local stock market sucked cash from the local market.

The local dollar also strengthened as the city was roiled by violent protests against an extradition bill that would allow people to be sent to mainland China.

The US dollar's latest drop comes as US President Donald Trump accused the European Union of devaluing the eurozone's single currency.

He also renewed his attacks on the Fed and its monetary policy. That has raised concerns that the trade tensions between the United States and the rest of the world will only intensify.

"The comments about the euro support our view that it's not just about China," Brown Brothers Harriman strategists said.

"Come November, auto tariffs will come back into focus with the EU and Japan on the front lines." REUTERS