Dollar broadly lower as risk appetite returns; yen slips

Key Points
  • Dollar index slips to five-week low
  • Yen slips; euro soars to a highest vs USD since Feb 16
Dan Kitwood | Getty Images

The U.S. dollar slipped to a five-week low against a basket of major currencies on Monday, as optimism that the United States and China are set to begin negotiations on trade helped ease fears of a trade war and investors' appetite for risk improved.

The dollar index, which measures the greenback against a basket of six other major currencies, was down 0.41 percent at 89.06, after slipping to a five-week low of 89.056.

"You are seeing fears of a trade war ebbing right now and investors are moving back into asset classes that offer relatively attractive returns right now," said Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto.

Global markets were shaken last week after U.S. President Donald Trump moved to impose tariffs on Chinese goods, edging the world's two largest economies closer to a trade war, but latest reports indicated a slightly more selective stance.

China's premier, Li Keqiang, said on Monday China and the United States should maintain negotiations and he reiterated pledges to ease access for American businesses.

Michael Diaz, head of FX for foreign exchange service XE, in Orange County, California, said futures traders were moving into riskier assets.

"That also means out of other safe haven currencies," he said.

The yen, often viewed as a safe-haven currency in times of market turbulence and economic uncertainty, partly because of the resilience provided by Japan's current account surplus, slipped against the greenback. The dollar was up 0.68 percent against the Japanese currency.

The dollar's strength against the was also due to Japanese factors such as growing views that a political scandal in Tokyo could deepen, with a figure in a cronyism controversy surrounding Prime Minister Shinzo Abe due to testify in parliament on Tuesday.

The euro rose 0.79 percent against the greenback, with the latest comments from Jens Weidmann, Germany's likely candidate to become the European Central Bank's next president, also offering some support.

Weidmann said market expectations of a rate hike towards the middle of next year were "not completely unrealistic", a view shared by the broader market, although some expect a rate hike by the first quarter of 2019.

"We should see the dollar remain a bit weak against the euro in the short term, just because of the economic outlook in Europe and the fact that they have really taken a more hawkish approach in pulling back from the quantitative easing that's been going on for the past decade there," XE's Diaz said.

Traders in the currency market were also braced for a flood of Treasury issuance this week.

"That's pushing short-term rates up and forcing traders into sort of a wait-and-see mode, because we are not really sure how much that will impact the market more generally," said Schamotta.

The British pound rose 0.69 percent against the dollar as investors became more convinced that the Bank of England would raise interest rates in May.