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Dollar Rally Enters 6th Day, Helped by Aussie, Euro Weakness

Investing.com – The dollar was holding close to two-week highs against the euro in early trading in Europe Friday after a report downplaying the chances of the U.S. and China ending their trade war.

At 03:15 AM ET (0815 GMT), the US Dollar Index, which tracks the greenback against a basket of other major currencies, was at 96.38, closing in on a new high for 2019. It’s now risen for the last six days, the longest continuous rally since October. Against the euro, it was at $1.1336.

The latest leg up came after a Wall Street Journal report said it was "highly unlikely" that Presidents Donald Trump and Xi Jinping would meet to resolve their trade differences before new U.S. tariffs come into force on March 1. Such bearish comments tend to support the dollar, whose safe haven function comes to the fore when trade tensions rise.

But the dollar’s strength is also a function of other currencies’ weakness right now, especially since the Federal Reserve has effectively put further interest rate increases on hold.

“We would be well served and the country would be well served if we paused and were patient for some number of months and sort of get out of the way,” Dallas Fed Chairman Robert Kaplan – one of the Fed’s more hawkish members - said in a speech Thursday. He noted that the stimulus from the 2017 tax cut is waning, while last year’s interest rate hikes are still to have their effect on the economy at large.

Earlier Friday, trade figures from Germany were in line with the weak pattern of recent data, showing exports near their lowest level in two years in December. The data hint at a growing impact from Brexit on Europe’s largest economy: the sharpest drop in both exports and imports was with non-euro-zone members of the EU, of which the U.K. is by far the largest.

The British pound has been range-bound since the Bank of England’s press conference Thursday, where Governor Mark Carney repeated that the next interest rate move could be up or down, depending how Brexit plays out.

“The Monetary Policy Committee are wage hawks and would be in hiking mode if not for Brexit,” said Nordea Markets analyst Jan van Gerich in a research note.

Elsewhere, the Aussie dollar fell sharply after the Reserve Bank of Australia cut its growth forecasts. It’s lost nearly 2.5% this week as the RBA has dropped its tightening bias under the influence of the Chinese economic slowdown.

The dollar was largely flat against the yen at 109.77.

Chinese markets remained closed for the Lunar New Year holiday.

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