Trade optimism from a weekend trade truce between the United States and China faded. The dollar edged lower on Tuesday.
On Monday global risky assets rallied on relief of waning tensions between Washington and China. The impact of the trade optimism around the G20 meeting has faded. The global investor spotlight will move to U.S. non-farm payrolls data due on Friday.
The euro got a brief boost after a media report that European Central Bank policymakers are in no rush to cut interest rates at a July policy meeting. Central bank officials are divided on the timing of the next policy move from the central bank. However, market gauges of interest rates have increased the odds of an ECB rate cut later this month, thanks to a global drop in bond yields.
The Australian dollar was the sole spot of strength in the global currency markets. The central bank lowered interest rates by 25 basis points to a record low of 1.00%, matching economists’ expectations. It said it would lower rates again “if needed”, a phrase some analysts took to mean an additional rate cut was less likely than previously thought. Traders attributed the currency’s bounce to heavy short positions built up in the Aussie ahead of the decision. Latest positioning data showed short bets at a six-month high.
Brexit and subsequent economic fears sent pound to two-week lows. Sterling hit a two-week low against the dollar on Tuesday. Surveys signalled the steepest reduction in construction output since the financial crisis, while Brexit developments continued to weigh on investors’ minds. Dollar strength, following a U.S.-China trade truce at the weekend G20 summit, added to the pound’s downward move. The British currency has lost 0.7% of its value against the dollar over the past week.
START TRADINGForex – Trade optimism fades: dollar struggles
Risky assets struggled to gain momentum after Monday’s relief rally with weak manufacturing surveys pointing to global economic headwinds.
The dollar was 0.1% lower at 96.75 and not far from a three-month low of 95.84 hit last week. Traders were firmly of the view the Fed will cut interest rates at least three times by the end of the year. However, the dollar’s losses were relatively tiny in comparison with Monday’s 0.6% bounce.
The euro edged as much as 0.25% higher to the day’s highs at $1.1322 before retracing some of its rise to stand 0.1% up on the day at $1.1300.
The Australian dollar gained after the central bank cut interest rates as expected but signaled a more balanced outlook. Aussie bounced 0.3% after a central bank rate cut decision offered few clues about future easing.
The sterling was down 0.2% at $1.2615, having earlier touched a low of $1.2607. A British construction purchasing managers’ survey fell to 43.1 in June from 48.6 in May, in spite of expectations of it rising to 49.3.
Against the euro, sterling fell by 0.3% to 89.55 pence.
Oil prices slipped on Tuesday as concerns that the global economy could be slowing outweighed an agreement by OPEC and allies. Brent crude futures LCOc1 were down 49 cents, or 0.75%, at $64.57 a barrel by 1340 GMT. U.S. crude futures for August CLc1 were down 58 cents, or 0.98%.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money