By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - The dollar climbed to a five-month peak on Monday as news of a truce between the United States and China on trade tariffs prompted investors to pare back their short positions on the greenback.
Investors have been short the dollar since July last year, but since mid-February, the dollar index has rallied nearly 7 percent. The dollar has been mainly bolstered by generally solid U.S. economic data that has backed the Federal Reserve's tightening stance this year.
The prospect of a resolution to the U.S.-China trade tension has further added to the dollar's shine.
The two world's largest economies have agreed to drop their tariff threats for now. U.S. 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.
"While there have seemingly been few signs of concrete progress in those negotiations, the more constructive tone from the two sides appears to be lending some support to the risk environment," said Erik Nelson, currency strategist at Wells Fargo (NYSE:WFC) Securities in New York.
That news also boosted U.S. equities and Treasury yields, underpinning the dollar as a result.
In mid-morning trading, the dollar index (DXY) rose 0.1 percent to 93.748 after earlier hitting a five-month high above 94.
This week, the dollar's fate rests on the Federal Reserve, with several Fed officials speaking this week and the minutes of the U.S. central bank's last monetary policy meeting due out on Wednesday.
"If the minutes take note of inflation creeping higher, it could open the door to faster rate hikes and a stronger dollar," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.
In other currency pairs, the dollar rose to a four-month high against the yen
The euro, meanwhile, was flat against the dollar at $1.1770
This week will bring about a further test for stubborn euro bulls with the release of May flash PMI data on Wednesday where markets will be waiting to see whether the first quarter slowdown in Europe has spilled over to the subsequent months.
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Currency bid prices at 10:23AM (1423 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Euro/Dollar EUR= $1.1754 $1.1775 -0.18% -2.02% +1.1781 +1.1717
Dollar/Yen JPY= 111.2300 110.7400 +0.44% -1.28% +111.3900 +110.7400
Euro/Yen EURJPY= 130.74 130.36 +0.29% -3.28% +130.9900 +130.3800
Dollar/Swiss CHF= 0.9979 0.9975 +0.04% +2.41% +1.0001 +0.9968
Sterling/Dollar GBP= 1.3418 1.3471 -0.39% -0.70% +1.3483 +1.3391
Dollar/Canadian CAD= 1.2844 1.2880 -0.28% +2.12% +1.2890 +1.2830
Australian/Doll AUD= 0.7553 0.7511 +0.56% -3.18% +0.7561 +0.7504
ar
Euro/Swiss EURCHF= 1.1730 1.1742 -0.10% +0.35% +1.1759 +1.1708
Euro/Sterling EURGBP= 0.8757 0.8740 +0.19% -1.42% +0.8773 +0.8723
NZ Dollar/Dolar NZD= 0.6920 0.6910 +0.14% -2.34% +0.6933 +0.6885
Dollar/Norway NOK= 8.0869 8.1124 -0.31% -1.46% +8.1370 +8.0672
Euro/Norway EURNOK= 9.5057 9.5548 -0.51% -3.48% +9.5585 +9.5000
Dollar/Sweden SEK= 8.7137 8.7525 -0.58% +6.24% +8.7812 +8.6926
Euro/Sweden EURSEK= 10.2427 10.3026 -0.58% +4.10% +10.3084 +10.2365