US dollar holds gains as fresh Trump comments rekindle trade worries

US dollar holds gains as fresh Trump comments rekindle trade worries

SINGAPORE,. The US dollar held gains today as fresh concerns about the Sino-US trade war bolstered support for safe haven currencies, although moves were tempered as investors await possible cues from the Federal Reserve about policy direction.

Weighing on global risk sentiment were comments from US President Donald Trump yesterday that seemed to hose down hopes of a trade truce with China.

In an interview with the Wall Street Journal, Trump said he expects to move ahead with raising tariffs on US$200 billion (RM838.4 billion) in Chinese imports to 25 per cent from 10 per cent currently.

The US dollar index, a gauge of its value versus six major peers, was steady at 97.06, trading near its highest level since November 15.

The greenback has advanced over the previous two days as investors sought the safety of the world’s most liquid currency on fears that the global economic recovery was losing steam.

Traders are also focused this week on a speech tomorrow by Fed Chairman Jerome Powell and minutes from the central bank’s November 7-8 meeting to be released on Thursday, for further cues of how many more times the Fed is likely to hike interest rates.

“Markets are really keen on what Powell has to say given there has already been a sharp adjustment in Fed hike expectations,” said Nick Twidale, chief operating officer, Rakuten Securities.

“We see an acknowledgement of slowing global growth as negative for the US dollar.”

The Fed is widely expected to raise interest rates by 25 basis points in December but the key debate in the market now is the pace of the US central bank’s monetary tightening path in 2019.

Twidale warned that the US dollar could see safe haven buying if there is no positive news from the upcoming G20 meeting in Buenos Aires on November 30, where Trump and Chinese President Xi Jinping are likely to discuss contentious trade matters.

However, investors also see the dollar’s rally potentially losing steam if slowing growth prompts the Fed to halt its monetary tightening cycle sooner than expected.

The Australian dollar, often considered a gauge for global risk appetite lost 0.1 per cent, to trade at US$0.7215 as rising trade tensions dampened investor sentiment in Asian trade.

The yen, also a safe haven currency, changed hands at 113.43, with the greenback losing 0.12 per cent versus the Japanese unit today. But analysts expect the yen to weaken further against the US dollar due to the divergence in monetary policy between the Fed and the Bank of Japan.

While the Fed is on a monetary tightening path, the BOJ remains committed to its ultra-loose monetary policy due to low growth and inflation.

The US dollar has gained 1.1 per cent over the Japanese currency in the previous five trading sessions.

The euro was relatively unchanged at US$1.1332 versus the greenback in Asian trade. The euro briefly hit an intra-day high of US$1.1383 yesterday after signs that Italy may cut its budget deficit target to satisfy the European Union.

The single currency later gave up its gains due to weaker-than-expected economic data out of the euro zone.

Mario Draghi, president of the European Central Bank acknowledged the slowdown in economic activity yesterday but said that the ECB remains on course to dial back its bond buying stimulus.

The British pound lost 0.2 per cent to US$1.2807 today.

Under a deal secured with European Union leaders on Sunday, Britain will leave the bloc in March with continued close trade ties. However, the odds now look stacked against British Prime Minister Theresa May in getting it approved by a divided British parliament.

“Parliament will vote on the deal on December 11 so between now and then, sterling will most likely trade in range as the sceptics hold out for a final outcome,” Kathy Lien, managing director of currency strategy, said in a note. — Reuters