Dollar near 2-week lows as risk appetite improves

The dollar traded near a two-week low against a basket of currencies on Wednesday after Chinese President Xi Jinping’s promise to cut import tariffs eased concerns about a U.S.-China trade conflict.

The dollar’s index versus a basket of six major peers last stood at 89.588, trading within sight of a low of 89.544 set on Tuesday, its lowest level since March 28.

Chinese President Xi Jinping promised on Tuesday to open the country’s economy further and lower import tariffs on products like cars, in a speech seen as an attempt to defuse an escalating trade dispute with the United States.

Global equities rallied and oil prices surged more than 3 percent on Tuesday as Xi’s comments allayed fears about the risk of a trade war between the world’s two largest economies that could harm global growth.

The improvement in risk sentiment gave a boost to commodities-linked currencies and emerging market currencies and weighed on the U.S. dollar as well as the Japanese yen.

Against the yen, the dollar eased 0.1 percent to 107.12 yen, giving back some of the 0.4 percent gain the dollar had made versus the yen on Tuesday as the Japanese currency slipped broadly.

The yen is a safe haven currency that tends to attract demand in times of economic uncertainty and vice versa.

The dollar will probably stay below 108 yen in the near-term especially given simmering geopolitical tensions, said Stephen Innes, head of trading in Asia-Pacific for Oanda.

“Even trade war rhetoric, I don’t think we’ve seen the end of this,” Innes said. Traders will probably prefer to take long positions in the yen, bracing for the possible next wave of risk version, he added.

The dollar, however, could extend its gains if it manages to rise above 108 yen, Innes said, adding that some stop-loss dollar buying could emerge at such levels.

Russia and the United States tangled on Tuesday at the United Nations over the use of chemical weapons in Syria as Washington and its allies considered whether to strike at President Bashar al-Assad’s forces over a suspected poison gas attack last weekend.

Later on Wednesday, the dollar could take its cues from U.S. consumer inflation data forMarch,as well as the minutes of the Federal Reserve’s March meeting.

The euro held steady at $1.2360, hovering near Tuesday’s high of$1.2378, its strongest level since March 28.

The common currency had gained a boost on Tuesday after European Central Bank policymaker Ewald Nowotny told Reuters in an interview that its 2.55-trillion euro ($3.15 trillion) bond buying programme would be wound down by the end of this year, which would then pave the way for the bank’s first rate rise since a fumbled move in 2011.

The euro gave up some gains against the dollar on Tuesday after an ECB spokesman said Nowotny’s comments about the future path of ECB rates do not represent views of the bank’s rate setting Governing Council.

The Canadian dollar stood at C$1.2595 per U.S. dollar. On Tuesday it had set a seven-week high of C$1.2588, helped by higher oil prices and the easing concerns about the U.S.-China trade row. Source: Reuters

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