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U.S. Dollar Loses Momentum as Trump Extends Trade Deadline

2/26/2019, 2:26:20 PMMarket Analysis
U.S. Dollar Loses Momentum as Trump Extends Trade Deadline

The greenback fell on Monday as hopes for a trade deal between the U.S. and China increased investor appetite for riskier assets such as equities and emerging market currencies and debt.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, fell 0.08% to 96.28 as of 11:00 AM ET (16.00 GMT).

Emerging currencies such as the South African rand and the Mexican peso, which aren't part of that basket, hit their highest in two weeks against the dollar as some of the safe haven flows of the last couple of weeks unwound. Other 'commodity' currencies such as the Aussie and kiwi also continued to find buyers long after their domestic markets closed.

On Sunday U.S. President Donald Trump tweeted that he would push back a March 1 deadline for new tariffs on $200 billion worth of Chinese imports, and meet with Chinese President Xi Jinping at his Mar-a-Lago estate in Florida to conclude talks.

The news increased hopes that the two will sign a trade deal soon, although official Chinese news agency Xinhua and others cautioned that there were still differences between the two parties.

The dollar was up against the safe-haven yen, with USD/JPY rising 0.12% to 110.79.

Elsewhere, the euro rose due to the weaker dollar, the EUR/USD pair rising 0.13% to 1.1355. The British pound recovered slightly, but is still in a holding pattern as the political process governing Brexit continues to twist. U.K. Prime Minister Theresa May has pushed back the next "meaningful vote" on her withdrawal agreement (the original one failed by over 200 votes in the House of Commons) as lawmakers on both sides continue to push agendas that seem incapable of commanding a majority in parliament.

The outlook for sterling isn't clear whatever the politics throws up, but most still argue that the most favorable short-term outcome for sterling is the one that comes as close as possible to keeping the status quo.

"We have highlighted the dangerous precedent and the lack of legitimacy in the eyes of the Leave Camp if the first referendum is overturned, but investors would likely respond to a second referendum by taking sterling higher, " said Marc Chandler, managing partner of Bannockburn Global Forex. "We could envisage a move toward $1.35 or a little higher if a second referendum were called."