Dollar falls for fourth day as investors doubt trade deal agreement

Pessimism over US/China deal hurts dollar

The dollar suffered its fourth day of losses as investors seek refuge in gold and other perceived safe havens, such as government bonds, in light of the twists and turns of the US/China trade impasse.

Investors have pushed global equities to two-year highs and US stocks to record highs in November, as confidence grew that Washington and Beijing would sign a phase-one agreement to scale back their nearly-two-year old trade war that has seen tariffs slapped on billions of goods.

However, there is evidence of pessimism among the Chinese camp that such an agreement may not happen this month. With a handful of weeks to go before yet another round of US tariffs on the country’s imports is set to kick in has put the brakes on the dollar and tempered some of the enthusiasm among the investment community.

A tweet by CNBC has suggested officials in Beijing were pessimistic about the prospect of U.S. President Donald Trump rolling back some tariffs had an instant impact on the financial markets.

“We are continuing to be stuck in this hamster wheel while we’ve got the trade-deal rollercoaster still rolling on,” said Saxo Bank head of commodity strategy Ole Hansen in a daily podcast. “We saw the immediate reaction (to the tweet). The Japanese yen strengthened, gold popped and stocks moved a tad lower but, overall, the market is still holding on to the idea that some sort of deal has to be announced.”

The price of gold was a touch lower on November 19, down 0.2 per cent at around $1,467 an ounce, having risen by nearly 0.5 per cent the previous day. Gold is still 5 per cent below early September’s six and a half-year highs.

Typically, gold moves inversely to the dollar, which is still up by nearly 1 per cent so far this month at 97.82, having eased back from last week’s four-week peaks.

Trump met with Federal Reserve chairman Jay Powell on Monday. Trump, who appointed Powell to head the US central bank in 2017, has repeatedly taken to Twitter to complain that interest rates are too high and the US is at a competitive disadvantage as a direct result of Fed monetary policy.

The Fed has cut interest rates three times during 2019, most recently in October, which in theory makes the dollar less attractive to foreign investors who can get more returns for their holdings in other currencies with higher rates.

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"At my meeting with Jay Powell this morning, I protested fact that our Fed Rate is set too high relative to the interest rates of other competitor countries," Trump said on Twitter on November 18.

"In fact, our rates should be lower than all others (we are the U.S.). Too strong a Dollar hurting manufacturers & growth!" he said.

“Trump ‘protested fact’ that US rates are too high and that US rates should be lower than all of their competitors. Markets took little notice though, probably because its not his first and unlikely to be his last stab at the Fed chair,” said CityIndex analyst Kelvin Wong in a daily report.

Analysts say Trump is effectively calling for a weaker dollar, something that, traditionally, previous administrations have not favoured on the grounds that a stronger currency encourages overseas holdings of US Treasuries, for example.

The Fed’s monetary policy committee will release the minutes of its October meeting on November 20, which may provide some fresh near-term direction for the dollar and other interest rate-sensitive assets such as gold, as traders and investors will scour the statement for any clues on the likely path of US rates.

“On the central bank front, the Fed minutes will be primarily of interest in terms of a) the balance of risks assessment and the degree of unanimity among the majority to signal a pause after the recent run of cuts; and b) the discussion around the repo and US money markets, given that the current calm in rates is unlikely to hold through year end,” said ADM global strategist and chief economist Marc Ostwald in a note.

FURTHER READING: US dollar in danger of losing status as world’s dominant currency

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