Dollar Edges Back as Hopes for Trade Deal Rise

Investing.com -- Foreign exchange markets got off to a slow start Monday, with trading set to remain subdued due to a sparse data calendar in Europe and public holidays in North America.

The dollar has retreated slightly over the weekend amid hopes that the U.S. and China will find a way to de-escalate their trade war. Such hopes were the main driver of a rally in Asian stock markets overnight, with the Nikkei 225 and Hang Seng indices both rising over 1.5%, while mainland Chinese stocks gained even more.

Commodity prices, too, have rallied overnight, with crude oil touching its highest level since November.

Officials from China and the U.S. are due to continue talks this week in Washington DC.

At 03:00 AM ET (0800 GMT), the dollar index was at 96.71, down nearly 0.5% from the new high for 2019 that it hit last week. It was supported by the buck rising against the yen, as the world’s cheapest funding currency suffered most from the return of animal spirits. The USD/JPY pair rose to 110.61.

The euro was back above $1.13, up nearly half a cent from the low it hit on Friday when European Central Bank board member Benoit Coeure said the euro-zone economy’s slowdown had been deeper and broader than the ECB first thought.

Marc Ostwald, global strategist and chief economist with ADM ISI in London, said in a note to clients that markets are balanced between the “ostensibly positive aspect of central banks stepping back from, or pushing back on policy tightening narratives,” given the weakening growth outlook, and the risk of further financial repression, and its baggage of negative interest rates and crushed credit premiums.

The British pound was weaker against the dollar but was holding up against the euro after the EU’s securities regulator ESMA said it would issue temporary licenses to U.K.-based clearing houses in the event of a ‘no-deal’ Brexit. That means EU-based clients would still be able to clear trades through London in the short term, reducing the risk of financial volatility. Cable was at $1.2902.

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