USD nauseous after Trump-Xi dinner, Starts December on a Weak Foot

Dec. 3, 2018 (Western Union Business Solutions)  – The U.S. dollar dove into December after a cooling in the U.S.-China trade war spurred a ferocious risk rally. The mostly weaker dollar sank against the Aussie and kiwi dollars and registered its deepest losses versus higher-yielding emerging markets. Canada’s dollar soared to two-week peaks as oil prices skyrocketed nearly 4% to just below $53. The U.S. and Chinese presidents agreed to a 90-day ceasefire in their trade feud, with the former vowing not to raise tariffs on Jan. 1, with the latter agreeing to buy more U.S. goods. The temporary truce was enough to unleash a strong global market rally at the safer buck’s expense. Scope for dollar weakness is likely to hinge on the strength of U.S. data this week that could cement a fourth interest rate hike from the Fed this year in a little over two weeks.




The euro ticked higher against the U.S. dollar though it ceded some strength, a reflection of investor unease over elevated political risk across the Continent. The market is cautiously hopeful that Rome and Brussels will reach a compromise in their budget feud. Still, recent data from Europe have been less than encouraging, which has raised questions about whether the ECB will be able to increase borrowing rates next year.




Sterling underperformed against the weaker U.S. dollar as Brexit developments weighed on sentiment. The U.K. Parliament on Dec. 11 is expected to vote on Prime Minister Theresa May’s Brexit proposal. Failure to pass Parliament could trigger a leadership challenge, a scenario that’s keeping pound-negative political uncertainty elevated. GBPUSD hit a five-week low, moving it closer to 2018 lows hit in August.




A 1% rally propelled the Canadian dollar to its highest in two weeks. Currencies with the closest links to global growth are faring the best today thanks to weekend progress on the U.S.-China trade war. The loonie added to its gains after oil prices soared nearly 4% to close to $53. Upside could prove limited for the loonie at least ahead of the Bank of Canada’s policy decision on Wednesday at 10 a.m. ET. Central bankers are expected to keep rates unchanged at 1.75% after data last week showed Canada’s economy slowed during the third quarter and went backwards in September.




South Africa’s rand rallied more than 1% to its highest in nearly four months against the greenback. Other riskier, emerging markets also strengthened like currencies from Mexico, China and Turkey. Investor angst over the U.S.-China trade war has diminished. The rally for risky assets may not last long since the G20 only helped to allay trade tensions, not eliminate them altogether.




The dollar Monday was mostly weaker with its biggest losses coming against peers with close ties to global growth. The dollar has benefited as a safe bet from the U.S.-China trade war so the cooling in tensions has led to some unwinding of those positions. The dollar’s weaker tone follows its performance last week when it lost ground on the perception the Fed may shift to a slower pace of rate rises given that policy in near a neutral level. Key events for the buck this week will be congressional testimony on the U.S. economy by the Fed chairman Wednesday and Friday when America’s November employment report is due. Any softness in data would further dampen confidence in U.S. rate hikes next year and leave the dollar vulnerable.


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