Dollar recovers as safe-haven flows help

A bank employee counts U.S. currency and Chinese currency notes at a bank on August 6, 2019 in China.
Xu Jinbai | Visual China Group | Getty Images

The dollar rebounded on Wednesday as investors were drawn to its safe-haven appeal a day after news of the launch of a formal impeachment inquiry against U.S. President Donald Trump drove a sharp move lower in risky assets.

Increased political uncertainty and lingering worries about the state of the trade talks between Washington and Beijing at a time when global economic growth is slowing worked in favor of the U.S. currency on Wednesday.

The greenback is viewed as safe-haven due to its standing as the world's reserve currency.

"I think that overall the dollar's safe haven status is understood," said Juan Perez, senior currency trader at Tempus Inc in Washington.

The dollar index, which measures the U.S. currency against six major currencies, was up 0.6%. On Tuesday, the index had slipped 0.3% to finish the session at 98.337.

Adam Cole, a currency analyst at RBC Capital Markets, said the immediate reaction to sell the dollar was questionable.

"For a couple of reasons it's not a sell risk or sell dollar story," he said, pointing to the very small chance that Trump would be impeached, and his view that if the president left office it would not necessarily be positive for risky assets.

Trump asked Ukraine's president in a July phone call to investigate whether a political rival, former Vice President Joe Biden, had shut down an investigation into a gas company that employed his son, according to a summary of the call released by the Trump administration on Wednesday.

The dollar was also benefiting from a sharp pull pack for the British pound amid worries that Brexit and general election related risks showed no signs of going away soon.

Meanwhile, Trump's rhetoric on China turned harsh on Tuesday as he criticized Beijing's trade practices during a speech at the United Nations General Assembly, feeding worries that the resolution to U.S.-China trade war remains elusive.

"There are political battles brewing on both sides of the Atlantic and with China and the U.S. not having the friendliest of tones during addresses at the United Nations, I feel like we are back at deep uncertainty," Tempus' Perez said.

"With little real economic growth to speak of globally, we see why the buck is stubbornly strong to end the third quarter," he said.

The euro, which has been dogged by worries about the dismal state of the euro zone economy, shed 0.5% on Wednesday.

The pound fell about 1% on Wednesday against the dollar, ceding gains made the previous day after the Supreme Court's ruling against Prime Minister Boris Johnson, as investors priced many more months of Brexit and general election risk.