NEW YORK: The dollar advanced to a five-month high against a basket of currencies on Monday, as news of a truce between the United States and China on trade tariffs prompted investors to pare back short positions on the greenback.
Investors have been short the dollar since July of last year, but the dollar index has rallied nearly 7 percent since mid-February. The dollar has been mainly bolstered by generally solid US economic data that has backed the Federal Reserve’s monetary policy tightening stance this year.
The prospect of a resolution to the US-China trade tensions has further added to the dollar’s shine.
The world’s two largest economies have agreed to drop their tariff threats for now. US Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic adviser, Larry Kudlow, said on Sunday the agreement reached by Chinese and American negotiators on Saturday set up a framework for addressing trade imbalances in the future.
“In the absence of major economic releases, the headline on the easing of trade tensions with China has been positive for the dollar, although the dollar in general has been doing a little bit better,” said Sireen Harajli, FX strategist at Mizuho Bank in New York.
“Economic data in the US has been performing fairly well, in contrast to other parts where things have not been so great,” she added.
Harajli cited concerns about Japan’s economy, which contracted in the first quarter of 2018, and the euro zone, with Germany, the biggest economy in the region, revising down its first-quarter growth.
In late trading, the dollar index rose 0.1 percent to 93.681 after earlier hitting a five-month high above 94.
This week, the dollar’s fate rests on the Fed, with several of its officials speaking and the minutes of the US central bank’s last monetary policy meeting due to be released on Wednesday.
Investors will focus on the Fed’s inflation outlook. Higher inflation could mean faster interest rate hikes and a stronger dollar.
In other currency pairs, the dollar rose to a four-month high against the yen at 111.39 and was last at 111.10, up 0.3 percent. The yen has been pressured by recent weaker Japanese data, a US-China trade war truce and elevated US Treasury yields, analysts said.
The euro, meanwhile, was flat against the dollar at $1.1775, after earlier falling to its lowest level since around mid-November. Europe’s single currency has been affected by concerns about political uncertainty in Italy.
This week will bring about a further test for stubborn euro bulls with the release of May flash PMI data on Wednesday, with markets waiting to see whether the first-quarter slowdown in Europe has spilled over to subsequent months.
Source: Brecorder
