Ups and downs of trade deal cause bad spell for the dollar

Denise Jackson

The ongoing saga of the potential US-China trade deal heralded problems for the greenback in international foreign exchange trading yesterday.

The deal, which earlier in the week was perceived as being close to signing, is increasingly being besieged by doubts as to whether or not it will materialise.

Problems were fuelled yesterday by contradictory sentiments coming out of the US government.

President Donald Trump has suggested in the past that November could be the month in which the “phase one” agreement, which would cover only some economic areas, might be signed.

However, yesterday (Wednesday) saw one of his senior officials suggest that pen may not be put to paper for the signatures until December – leading forex traders to be left nervous.

On Thursday morning, it was seen holding relatively firm in its pair with the Japanese yen and was recorded at 108.94 at one stage.

It was down by almost a fifth of a percentage point in that pair yesterday, however.

The Japanese yen is often seen as a place traders flock to when there is a wider sense of uncertainty in the air.

The trade war between the two countries, which has now extended for almost a year and a half, is seen as causing significant issues for economic growth around the world.

Overall, the US dollar index – which calculates the relative position of the greenback compared to several other currencies – was holding firm.

It was seen at 97.952 at one point.

The other major global player in the forex markets yesterday and into today was the British pound.

In the short term, the pound faces a decision from the Bank of England’s Monetary Policy Committee this morning.

It is widely expected that the Bank will keep interest rates as they currently are at 0.75%.

However, a report in Reuters suggested that some economists are predicting there will be one vote in favour of cutting rates.

If this vote is cast, it will represent the first time such a vote has been cast since the last interest rate cut three years ago.

Another challenge may be inflation.

The inflation level in the UK is currently quite close to the goal levels outlined by the Bank of England, and new predictions out today are expected to show that a rise could be on the way.

In the medium term, the pound will need to contend with a general election due to be held in the country on 12th December.

The governing Conservative Party led by Boris Johnson is seeking to win a majority.

The next deadline for Brexit is 31st January.

The pound was seen at $1.2854 at one point in its pair with the US dollar.

This was near to the worst performance in recent days, which happened at the end of October.

Elsewhere in forex trading, the single European currency was seen $1.1070 in its pair with the US dollar.

It suffered a tiny drop over the course of Wednesday – barely enough to cause a disturbance in its forex trading position.

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