Breaking News

Dollar buoyed by Fed expectations, trade tensions support safe haven bids

ForexNov 28, 2018 01:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: U.S. dollar notes are seen in this picture illustration

By Vatsal Srivastava

SINGAPORE (Reuters) - The dollar held near two-week highs on Wednesday, as concerns about Sino-U.S. trade tensions propped up safe haven currencies and as investors awaited cues from the U.S. Federal Reserve on the path of future interest rate increases.

The dollar has been under pressure in recent weeks on signs the Fed might slow the pace of future rate increases due to slowing global growth, peak corporate earnings and escalating trade tensions.

Attention has now turned to a speech by Fed Chairman Jerome Powell later on Wednesday and the minutes from the Fed’s Nov. 7-8 meeting on Thursday. Markets hope to gain fresh insights into the Fed's thinking on the speed and number of rate hikes in the current cycle.

"We don't think Powell will diverge too much from the Fed's data dependent approach. Our base case remains for the Fed to raise rates 4 times in 2019," said Terence Wu, currency strategist at OCBC Bank.

The U.S. central bank is widely expected to raise rates by 25 basis points next month.

In an interview to the Washington Post on Tuesday, U.S. President Donald Trump said he is unhappy with the Fed's policy stance and Powell, whom he picked last year to lead the bank.

Trump has repeatedly criticized the Fed and Powell on the U.S. central bank's monetary policy stance, saying rising U.S. rates were harming the economy.

But analysts think it is unlikely that political interference can alter the Fed's approach to formulating monetary policy.

"The Fed relishes its independence and their approach is very mathematical and systematic. Under no circumstances do we expect the U.S. central bank to be pressured by Trump," said Stephen Innes, head of trading, APAC at Oanda.

In comments made on Tuesday, Federal Reserve Vice Chair Richard Clarida backed further rate hikes though he said the tightening path would be data dependent. He said monitoring of economic data has become even more critical as the Fed edged ever closer to a neutral stance.

"Clarida went back to the usual script and his comments did not contain the dovish overtone as some had expected," said Wu.

The dollar index (DXY), a gauge of its value versus six major peers, traded at 97.38 having risen for three sessions in a row. It is just below this year's high of 97.69.

Dollar strength also reflected risks around the upcoming G20 summit in Buenos Aires between Nov. 30-Dec. 1 where Trump and his Chinese counterpart, Xi Jinping, are scheduled to discuss contentious trade matters.

Trump's comments this week that it was "highly unlikely" he would accept China's request to hold off a planned increase in tariffs drove investors to safe-haven currencies such as the dollar and the yen.

The yen hit a two-week low of 113.85 on Wednesday.

"Interest rate differentials between U.S. and Japan are likely to support dollar/yen going ahead," added Wu.

The euro (EUR=) gained 0.07 percent versus the dollar to $1.1295. The single currency has lost 1.5 percent of its value in recent sessions due to signs of weakening eurozone economic momentum and ongoing tensions between the European Union and Italy over Rome's free spending budget.

Elsewhere, sterling was a touch lower at $1.2742. The pound is likely to remain under pressure as traders bet that British Prime Minister Theresa May would fail to get the nod for her Brexit agreement in a fractious parliament.

The Australian dollar , often considered a gauge for global risk appetite, gained 0.15 percent to $0.7231 as Asian equities pushed higher.

However, analysts expect the Aussie dollar to remain vulnerable to further declines amid sharp losses in the price of iron ore, a key export earner for the country, and as U.S.-Sino trade tensions showed no signs of abating.

Dollar buoyed by Fed expectations, trade tensions support safe haven bids

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email