Dollar Weighed As Investors Await U.S. Trade Deal
The dollar weakened on Tuesday as investors grew impatient with a hoped-for U.S. trade deal, while Asian currencies took a breather after an unprecedented two-day surge that highlighted the greenback's fragility.
The dollar was last down 0.5% against the Japanese yen at 142.99, and was also lower against European currencies, with the euro and pound up 0.2% at $1.1341 and $1.3328, respectively.
"What's clear this morning is that some of the optimism we had last week around a trade deal has faded," said Jane Foley, head of FX strategy at Rabobank.
She said markets will soon "get impatient" and start paying more attention to warnings from companies about the damage to the global economy from tariffs.
In recent weeks, investors have grown increasingly optimistic that the U.S. will reach a deal that cuts tariffs, optimism that has helped support stocks and the U.S. dollar.
Currency traders are also still processing the latest moves in emerging Asian currencies, although the Taiwan dollar’s unprecedented two-day rally eased on Tuesday.
Other currencies in emerging Asia also rose, which is a warning for the dollar as it shows money is flowing into the region on a large scale and a key pillar of the dollar’s support is faltering.
“A much-talked-about factor is whether countries with historically ‘weak’ and tightly managed currencies that are now appealing to Trump through currency channels are now allowing currency appreciation as part of trade negotiations,” said Chris Weston, head of research at Pepperstone.
Such deals have been repeatedly rejected by Taiwan’s central bank, but markets are not entirely convinced and see the Taiwan dollar’s surge as tacit approval, and likely welcomed by the United States.
The onshore yuan rose 0.7% to 7.2212 per dollar following the reopening of trade after a long lull, while its offshore counterpart was not far from a six-month high of 7.2135. [CNY/]
Elsewhere, the euro appeared unfazed after conservative leader Friedrich Merz in Germany failed to win parliamentary support to become chancellor, in an unexpected setback for his new coalition with the center-left Social Democrats.
The next major development scheduled for currency markets is the Federal Reserve’s policy decision on Wednesday. The U.S. central bank is widely expected to keep interest rates on hold, but the meeting could be the last where the outcome is clear.
The Bank of England also meets this week and is widely expected to cut rates by a quarter point on Thursday as Trump’s tariffs darken the outlook for global growth, while central banks in Norway and Sweden are widely expected to keep rates unchanged. Swiss National Bank President Martin Schlegel said the SNB was ready to intervene in currency markets and cut rates even below zero to prevent inflation from falling below its price stability target. The franc was slightly weaker at 0.9330 against the euro and 0.8234 against the dollar.
Source: Investing.com
