US dollar shaky on Fed minutes, riskier assets up on trade optimism

Downward pressure remains on the US dollar in expectation of a US Fed pause on interest rate hikes. — AFP pic
Downward pressure remains on the in expectation of a US Fed pause on interest . — AFP pic

, Jan 10 — The US dollar was under pressure early today on growing expectations the Federal Reserve will pause its rate tightening cycle this year, while optimism about the Sino-US trade talks reduced demand for safe-haven assets.

Minutes from the Fed’s December 18-19 meeting revealed that several policymakers were in favour of the US keeping rates steady this year.

Broader market sentiment was also bolstered in early Asian trade amid signs of progress in US- trade talks. Trade tensions between the world’s two largest had rattled markets for most of last year.

“The Fed has acknowledged market concerns with its language. The markets are clearly reading into this as a more accommodative stance,” said Michael McCarthy, chief markets strategist at CMC Markets.



“Optimism on US-China trade talks is also bolstering risk sentiment…the sharp rally in oil prices is also indicative of the fact that fears were probably overdone,” added McCarthy.

Commodity currencies such as the Canadian dollar have been the biggest beneficiaries of improving risk sentiment this week. The loonie fetched C$1.3206, hovering near its highest level in more than a month thanks to a sharp rebound in oil prices.

Also supporting the loonie was the Bank of Canada’s assessment that further rate hikes may be necessary.

The US dollar index was marginally lower at 95.14, after losing 0.7 per cent yesterday. The index has weakened in four out of the last five sessions as traders wager that US interest rates will stay steady in 2019.

The US dollar had gained 4.3 per cent in 2018 as the Fed hiked rates four times on the back of a strong domestic economy, falling unemployment and rising wage pressures.

The euro and sterling each gained marginally on the US dollar, fetching US$1.1547 and US$1.2794 respectively. However, traders expect the strength in both these currencies to fade in the coming weeks.

Economic data in the eurozone has remained consistently weaker than estimates over the last few months, especially in France and Germany, the eurozone’s economic powerhouses. The European Central Bank is widely expected to remain accommodative in 2019, which should keep a lid on the single currency.

Brexit woes are most likely to dominate sentiment towards sterling. Britain’s Prime Minister Theresa May must win a vote in parliament to get her Brexit deal approved or risk seeing Britain’s exit from the European Union descend into chaos. The vote is now due to take place the week beginning 14.



May’s chances of winning the vote look slim as the DUP, the small Northern Irish party that usually props up her government, is opposed to the deal.

Elsewhere, the Australian dollar, often considered a barometer of global risk, was steady at US$0.7170. Aggressive monetary stimulus measures in China and well as hopes of a concrete US-Sino trade deal have supported the Aussie dollar.

China is Australia’s largest trade partner and improving sentiment in the world’s second largest economy usually bodes well for the Aussie dollar. — Reuters

Source: The Malay Mail Online





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