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Dollar dips, euro steadies after German coalition partners resolve row

7/3/2018, 2:14:46 PMTrading Strategies
Dollar dips, euro steadies after German coalition partners resolve row

The dollar eased marginally against its peers on Tuesday, as the euro steadied after partners in Germany's coalition settled a row over migration that had threatened to topple Chancellor Angela Merkel's government.

The euro was little changed at $1.1630 (EUR=) after shedding 0.45 percent overnight.

The single currency had slipped on Monday after German Interior Minister Horst Seehofer offered to resign, but it later steadied when his Christian Social Union (CSU) party reached a deal with Merkel's Christian Democrats (CDU) over illegal immigration, and the resignation threat was withdrawn.

"Concerns toward the euro have ebbed for the time being. But the underlying immigration and refugee theme will continue to remain a potential risk factor," said Shin Kadota, senior strategist at Barclays (LON:BARC) in Tokyo.

The dollar remained broadly supported, meanwhile, as trade tensions propped up the greenback against commodity currencies, like the Australian dollar, and emerging market currencies whose economies are most vulnerable to a downturn in trade.

The dollar index against a basket of six major currencies inched down 0.1 percent to 94.913 (DXY) after gaining about 0.45 percent the previous day.

"There's a strong element of 'risk off' generated by trade concerns behind the dollar's latest rise. That said, the dollar has managed to gain only as emerging market and commodity currencies have slid due to risk aversion," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"A currency of a country with a large current account deficit is not usually a choice destination during risk aversion, but the dollar is high in liquidity, which is a draw."

The Chinese yuan remained volatile on the back of nervousness ahead of July 6, when U.S. tariffs on Chinese exports are due to take effect.

The yuan earlier fell to 6.7204 per dollar , its weakest since August 2017, before recovering to 6.7035 in what traders described as efforts by state-owned banks to prop up the currency.

Commodity-linked currencies such as the Australian dollar, which is sensitive to shifts in sentiment toward China, have also felt pressure from trade conflict concerns.

The Aussie was down 0.15 percent at $0.7330 and near a 1-1/2-year low of $0.7311 plumbed on Monday after the Reserve Bank of Australia (RBA) kept interest rates unchanged and signaled a steady outlook for some time to come.

In a widely expected move the RBA left its cash rate at 1.5 percent on Tuesday following its policy meeting.

The dollar was a shade lower at 110.850 yen after edging up 0.2 percent the previous day, supported by robust U.S. economic data, higher Treasury yields and a bounce in shares on Wall Street.