US Dollar Avoids Big Drop as Anticipation Over Trade Deal Mounts

David Hobart

The possibility of a trade deal being on the cards ensured that the US dollar stayed in a relatively strong position on Tuesday and into Wednesday.

There is renewed speculation that both the US and China will be able to come to an agreement to get through what they call a “phase one” deal as soon as this month.

According to analysts, markets were now beginning to expect that there will be confirmation from both sides that the deal will take place.

The US dollar index, which monitors the greenback and tracks it to see how it is doing compared to other international currencies, was down but only by a tenth of a percentage point.

This was still positive for the index as it had gone up by almost half a percentage point the day before.

Overall, it was seen at 97.876.

The single European currency plummeted on Tuesday.

It went down by half a percentage point in its pair against the US dollar and was recorded at $1.1077 at one stage.

In its pair with the Japanese yen, however, the dollar was seen to slip a little and was placed at 109.00 yen at one stage.

While this still represents an overall high place for the currency, it may represent a sign of market sentiment shifting ever so slightly away from the dollar.

US economic data which came out on Tuesday was also good.

A look at the performance of the US service sector, for example, revealed that business sentiment was up over the course of October – which was a far cry from the same release in September, which revealed its worst position for three years.

Elsewhere, the signs that risk might be back on the agenda at least to some degree fuelled good news for the Australian dollar, which is one of the most trade-sensitive currencies in the world.

It managed to hold on to the gains of well over 3% which it has secured over the course of October.

This was perhaps down in part to the chances of a trade deal being struck between China and the US: Australia has a deep economic dependency on China due to its trading partnerships.

In offshore trading, the Chinese yuan managed to settle at around 7 yuan to the US dollar.

This was again fuelled by speculation that an end to the trading war could be on the cards.

This is distinct to the onshore Chinese yuan, which is set centrally by institutions of the Chinese government.

Overall, the offshore yuan has gone up by nearly 3%.

Any analysts or traders who began to wonder whether risk could come off the cards yesterday were likely to have had that perception stymied by the performance of the Swiss franc.

The franc, which is a safe haven currency that goes up in times of market turmoil and down when risk is more palatable to traders, remained in the doldrums in its pair with the US dollar.

It had half a percentage point taken off its value on Tuesday.

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