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Euro falls as rate expectations, trade tensions boost dollar

Posted by: Admin | Posted on: July 13th, 2018 | 0 Comments

LONDON (Reuters) – The euro fell to a eight-day low on Friday as U.S. inflation numbers boosted interest rate expectations and an easing in trade tensions between the United States and China supported the dollar.

FILE PHOTO: The signature of the President of the European Central Bank (ECB), Mario Draghi, is seen on the new 50 euro banknote during a presentation by the German Central Bank (Bundesbank) at its headquarters in Frankfurt, Germany, March 16, 2017. REUTERS/Kai Pfaffenbach/File Photo

U.S. President Donald Trump’s comments on Britain’s Brexit plan killing hopes of a U.S. trade deal also knocked sterling lower, pushing the dollar up across the board.

U.S. consumer prices data on Thursday showed a steady buildup of inflation pressure that could allow the Federal Reserve to raise interest rates as many as four times in 2018.

While rising inflation is largely expected by markets, it will reinforce the view of a “widening in monetary policy divergence” between the Federal Reserve and other central banks, said Piotr Matys, FX strategist at Rabobank.

“The latest set of inflation data confirms that the Fed will stay well ahead of other central banks,” he said. “We believe the dollar has the potential to extend its rally.”

European Central Bank minutes published on Thursday also weighed on the euro, showing that members remain dovish and are a long way from normalizing policy.

The single currency dropped to as low as $1.1627 EUR= while the dollar index neared a 10-day high.

With a calming in U.S.-China trade-related tensions after U.S. Treasury Secretary Steven Mnuchin said on Thursday that the U.S. and China could reopen trade talks, investor appetite for riskier bets grew. The safe-haven yen fell to another six-month low at 112.775 yen JPY=.

The dollar has advanced roughly 2 percent versus the yen this week, the biggest weekly gain since mid-September.

Still, the growing conflict over trade between China and United States after Trump pledged to impose tariffs on $2000 billion more of Chinese imports has boosted the dollar this week.

“The dollar has benefited this week from the trade conflict concerns that emerged earlier, which ended up funneling safe-haven bids into the currency,” said Koji Fukaya, president of FPG Securities in Tokyo.

China’s trade surplus with the United States swelled to a record in June as its overall exports grew, a result that could further inflame the trade dispute.

The Australian dollar slipped 0.3 percent to $0.7387 AUD=D3. The currency has had a turbulent week, sinking more than 1 percent midweek on the trade conflict before steadying as risk aversion ebbed in the broader markets.

The Aussie, considered a proxy for China-related trades, showed little reaction to data on Friday showing China’s dollar-denominated exports rose in June.

Sterling slid more than half a percent to $1.3131 GBP=

Additional reporting by Daniel Leussink and Shinichi Saoshiro in Tokyo, editing by Larry King

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/wWemDF3RtUU/euro-falls-as-rate-expectations-trade-tensions-boost-dollar-idUSKBN1K304F

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