The dollar and the euro were hardly moved on Wednesday prior to the meeting between US President Donald Trump and European Commission President Jean-Claude Juncker amid the investors’ focus on the trade friction between the world’s two largest economic powers.
The US dollar index, which measures the dollar’s power against a basket of six other major currencies, was little moved at 94.651, off from its two-week low of 94.207 reached on Monday.
Fears of a trade friction with the United States trapped the euro in narrow ranges, even as Juncker goes to Washington later the day in order to hold trade issues and differences with Trump.
The meeting comes following Trump’s slapping of steep tariffs on European Union steel and aluminum, as well as Trump’s threats to extend such tariffs on Euro-made automobiles.
“If there is a further escalation of the trade issue, that could potentially hurt the risk sentiment and put pressures on the dollar/yen,” stated Shinichiro Kadota, who is the senior FX & rates strategist at Barclays.
The common currency traded almost flat at $1.1678.
Investors were also focused on a European Central Bank (ECB) policy meeting on Thursday for hints over the next direction of the markets.
The ECB has guided markets for steady rates “through the summer” of 2019 at a meeting last month, in which it also disclosed that it would shut its signatory bond-purchasing monetary stimulus in December later this year.
The dollar was 0.1 percent higher against the yen at 111.32 yen per dollar.
The yen gained some buoyance earlier this week on expectations that the Bank of Japan might be a nearer to the scaling back of its aggressive monetary stimulus.
Meanwhile, risk appetites were mostly steady on the back of strong US corporate earnings and hopes that China will boost its fiscal support to the economy.
The offshore yuan was weaker against the dollar, dropping 0.1 percent to 6.8145 per dollar.
Furthermore, the Australian dollar declined after data that was released on Wednesday showed inflation that remained still low during the last quarter in spite of fairly great economic growth. The currency traded 0.3 percent lower at $0.7398.
Kasushige Kaida, who is the head of foreign exchange at the State Street Bank in Tokyo, stated that the market is awaiting to see how Beijing would react if the United States decides to put tariffs on all $500 billion of its imports from China.
During an interview last Friday, Trump said that the US was “down a tremendous amount” and he was “ready to go to 500.”
Kaida talked about this and said that the US president “tried to pick a fight by making various comments about foreign exchange markets. But China has not responded to that in any way.”
“It will be a plus for risk sentiment if the United States turns out to be mainly looking for a confrontation with China in its trade war, and not so much with the euro zone and Japan,” added Kaida.