Dollar prices near 1-year highs on trade concerns, H1 flows

Big 5

Dollar prices held near one-year highs on Thursday as conflicting signals about developments in the trade row between Washington and its business partners prompted buying of the currency, with support also coming from half-year end rebalancing flows.

Though overnight headlines suggested a more conciliatory approach from Washington, broader risk appetite remained modest in the currency markets, with perceived safe-havens such as the Japanese yen and the Swiss franc firmly supported.

U.S. President Donald Trump said on Wednesday he would use a strengthened national security review process to block Chinese acquisitions of sensitive American technologies, a softer approach than imposing China-specific investment restrictions.

“The latest headlines indicate a slightly softer stance but markets would be wary of reading too much into it for now, which explains the strength of the yen and the franc,” said Thu Lan Nguyen, an analyst at Commerzbank in Frankfurt.

In early London trading, the dollar edged 0.3 percent higher to 95.51 against a basket of its rivals, just below a mid-July 2017 high of 95.529 hit last week.

Though the yen showed some weakness overnight, it remains firmly below a 2018 high of above 111 yen per dollar hit last month. The Swiss franc, another risk barometer, also remains firmly below 1.16 per euro, a level considered too strong for the central bank’s comfort.

The euro was on the back foot, with likely weak data and political concerns in Germany weighing. It was down 0.2 percent at $1.1538.

German Chancellor Angela Merkel’s fragile coalition government faces potential collapse as the Christian Social Union (CSU), her Bavarian ally, has threatened to defy her and impose border controls unless their demands to reduce Germany’s immigration burden are met.

There was some confusion about Washington’s trade intentions, with U.S. shares making an about-turn and dropping after White House economic adviser Larry Kudlow told Fox Business Network that Trump’s announced plan did not indicate a softened stance on China.

“The dollar has managed to stay buoyant despite a drop in Treasury yields and risk-off in U.S. stocks due to half year-end flows, which involves U.S. investors buying back the dollar,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

“It remains to be seen how long flow-driven bids can support the dollar. Headlines on trade issues will continue to dictate direction once such flows subside.”

Among other major event risks is an EU summit starting on Thursday, from which Brexit-related headlines might sway the pound. In recent days, however, sterling has been moved more by expectations of UK rate changes.

The Australian dollar bounced modestly after sliding the previous day on the U.S.-China trade tensions. The Aussie was up 0.2 percent at $0.7356 after plumbing a 1-1/2-year trough of $0.7323 on Wednesday. (Reporting by Saikat Chatterjee; Additional reporting by Shinichi Saoshiro in TOKYO; editing by John Stonestreet)