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Dollar Ditched Amid Optimism Over Trade

8/29/2018, 11:36:17 AMBasics of Trading
Dollar Ditched Amid Optimism Over Trade

The dollar continued its retreat against its rivals Tuesday, shrugging off mostly positive U.S. economic data as the United States' deal with Mexico eased trade concerns, reducing demand for the greenback.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.23% to 94.45.

Optimism over trade relations -- after the U.S. struck a deal with Mexico on Monday -- prompted traders to continue to unwind their bullish bets on dollar, some of which had been made on the back of trade uncertainties.

Still, lingering trade tensions remained as investor focus shifted to U.S.-Canada trade talks, which got underway on Tuesday. U.S. Treasury Secretary Steven Mnuchin said Tuesday the Trump administration's objective "is to try to get Canada on board quickly."

President Trump on Monday announced his administration had reached a deal with Mexico on issues that have upended the renegotiation of the North American Free Trade Agreement (NAFTA), the current trilateral trade agreement among the U.S., Canada and Mexico.

USD/MSN rose 1.10% to 18.9712, while USD/CAD fell 0.38% to C$1.2918.

Upbeat data showing consumer confidence hit an 18-year high and strong regional manufacturing drew a modest advance from lows in the dollar.

The Conference Board’s consumer confidence gauge rose to 133.4 in August from 127.9 in July, beating economists’ forecast for a reading of 126.7.

The Richmond Fed manufacturing index rose by 4 points to a reading of 24 in August from the prior month, beating expectations for a reading of 18.

Analysts attributed the rise in consumer confidence to a tightening labor market, underpinning expectations for rises in wage growth.

"Current optimism continues to be a reflection of the tightening labor market. Consumers generally expect their incomes to rise over the next six months, while employment conditions are expected to remain fairly stable," Wells Fargo (NYSE:WFC) said in a note to clients.

Also keeping a lid on the dollar's advance was a rise in the euro against the greenback to $1.1717, up 0.33%, despite concerns over political uncertainty in Italy.

"The main downside risk to the outlook for EUR/USD in the near-term continues to be posed by Italian political developments," MUFG said.

GBP/USD was flat at $1.2889, as fears of a no-Brexit deal, which would see the U.K. crash out of the European Union without a trade deal with the member bloc, continued to limit gains in the pair.

USD/JPY fell 0.01% to Y111.06.