Dollar Trades Low Ahead of Trade Talks

The dollar trades lower prior to the US-China trade talks set this week. Read more about it here!

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The dollar traded lower against a basket of other major currencies on Tuesday after US President Donald Trump stated he was “not thrilled” with Federal Reserve Chairman Jerome Powell for hiking interest rates.

The dollar was further weakened as investors shifted away from the safe-haven currency prior to the awaited talks this week between the United States and China.  Some other market participants believe that the talks might lead to an easing of the worsening trade war.

The US dollar index, which gauges the greenback’s strength against a basket of other major currencies, dropped 0.37 percent to 95.554 after reaching as low as 95.440, which was its lowest level since August 9.

“At the moment, markets fear that Trump may have some impact on the Fed’s policy,” stated Masafumi Yamamoto, who is the chief currency strategist at Mizuho Securities.  “Especially the dollar/yen, which is sensitive to the rate moves of the United States, remains under pressure.”

The yen was mostly flat at 110.08 yen, paring gains after touching  as high as 109.775 yen earlier in the trade. The dollar on Tuesday slipped below the psychologically significant 110 yen barrier for the first time since June 28.

The greenback dropped after Trump said in an interview that he was “not thrilled” with Powell’s decision to raise interest rates.  Trump nominated Powell last year to replace former Federal Reserve Chairman Janet Yellen.

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The president spurred fears among investors last July when he sent criticism aimed at the Fed over tightening monetary policy.  On Monday, he said the Fed should be more accommodating on interest rates.

Yamamoto said that Fed officials do not seemed influenced by the president’s comments.

“As long as the US economy is okay… then I think there is no reason to stop the rate hikes from the Fed’s point of view,” he explained.

Trump also said that the US central bank should do more to help him boost the economy, while accusing China and Europe of manipulating their respective currencies.

Worsening trade tensions between the United States and its trading partners and a plummet in the Turkish lira had catapulted the dollar index to 96.984 on August 15. It was the index’s highest level since June 2017.

The dollar’s rally stopped to ahead of the trade talks between Chinese and US officials in Washington.  The meetings are scheduled mid-week and will involve lower-level officials.  They  will the first formal US-China trade meeting since June.

“It’s positive news that China and the United States are going to have negotiations. It isn’t bad for the renminbi and a plus for Chinese stocks,” said Ayako Sera, who is a market strategist at Sumitomo Mitsui Trust Bank.

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