The dollar saw muted action Wednesday, as major currency trading calms somewhat, a day after fears of a trade war between China and the U.S. sparked fresh haven-currency buying.
The U.S. ICE Dollar Index DXY, +0.01% which measures the greenback against a basket of six rivals, was little changed in negative territory at 95.049, after touching an 11-month high Tuesday, underlining a period of relative placidity after markets were thrown into a tizzy after the U.S. threatened to place tariffs on an additional $400 billion worth of Chinese imports and Beijing warned it would retaliate.
On Tuesday, flight to assets perceived as safe sent investors fleeing to the likes of the Japanese yen USDJPY, +0.13% a currency popular during times of global uncertainty.
However, a lack of news on the trade front on Wednesday, the panic subsided, leaving currency markets relatively flat. A broader gauge of dollar strength, the WSJ Dollar Index BUXX, -0.01% was also virtually flat at 88.23.
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The yen, meanwhile, retreated somewhat, with the dollar fetching ¥110.13, compared with ¥110.06 late Tuesday in New York.
Also in focus for currency investors was the European Central Bank’s forum in Sintra, Portugal, which included a panel discussion with the ECB’s Mario Draghi, Federal Reserve boss Jerome Powell, Bank of Japan Gov. Haruhiko Kuroda, and Reserve Bank of Australia Gov. Philip Lowe.
While all central bankers were rather measured and careful in their comments, Draghi and Powell agreed in their assessment that it was too early to tell how the announced and threatened tariffs would impact monetary policy, although it was possible that they would. Kuroda added that Japan’s economy could see a significant indirect impact from the escalating tensions.
On Tuesday, Draghi highlighted the central bank’s dovish message on monetary policy in Sintra, indicating that it could extend its bond-buying program if necessary. The euro EURUSD, +0.0259% last bought $1.1579, down 0.1%, according to FactSet.
“Some market participants had thought he might use his speech to fight back against the market’s dovish interpretation of his comments,” said Marshall Gittler, chief strategist at ACLS Global. “It’s clear to me that the monetary diversion trade is back in force for the euro-dollar pair, which is likely to lead the dollar higher, assuming that is, that Trump’s trade war doesn’t lead it off a cliff.”
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