The dollar ended its five-day losing streak on Thursday and the euro dropped on Thursday as the greenback was buoyed by political uncertainty, a new round of trade tariff talks, and the Federal Reserve’s most recent policy meeting minutes, which pointed to a September rate rise.
Even if the minutes were just what has been expected and was primarily taken as dovish by the market, analysts suggest that dollar bulls had been looking for an excuse to stack back into the greenback after it had slipped more than 2 percent from the 14-month highs during its lengthiest losing streak for the year so far.
The United States and China heightened their months-long trade war, imposing punitive 25 percent tariffs on $16 billion worth of each other’s goods, shaking investors who have typically searched for relative safety in the dollar.
The greenback also found some support after the Fed’s minutes showed that officials discussing hiking interest rates soon.
“I think the market has been waiting for the moment to get back in (to the dollar),” stated Neil Mellor, who is a strategist at BNY Mellon.
The US dollar index, which measures the strength of the dollar against a basket of six other major currencies, gained 0.2 percent to 95.334, moving off from an almost three-week low of 94.934 that was reached overnight.
The euro was lower around 0.3 percent at $1.1569, recovering from a two-week high of $1.1623. Traders are currently preparing for purchasing manager’s surveys later in the day to gauge the status of the euro zone economy in August.
“I’m still not fully convinced we have a sustained dollar rally here, especially after Mr. Trump’s comments,” Mellor said, talking about President Donald Trump’s critical comments of the Fed’s interest rate hikes during an interview.
The Australian dollar slipped 0.8 percent to $0.7294 as Prime Minister Malcolm Turnbull’s position appeared to be under threat after his senior ministers called for a second leadership vote.
The Australian dollar typically doesn’t get affected by Australian politics, according to analysts.
“Since the Liberal leadership spill on Tuesday, the Australian dollar is easily the weakest G10 currency – despite strong Q2 construction data on Wednesday – which suggests that this is a rare instance of the Aussia carrying a small political risk premium,” stated Sydney-based Sean Callow, who is a senior currency strategist at Westpac.
The yen dropped 0.3 percent to 110.85 versus the dollar on the safe-haven demand for the dollar.
The Fed’s minutes showed that the officials examined how global trade friction could affect businesses and households, indicating that the market’s perceived path for monetary tightening could have to change if the trade conflict negatively influences the US economy.
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