Dollar calm after earlier volatility sterling in focus


NEW YORK: The dollar was steady in early European trade Tuesday, after some volatile trading in Asian hours on the back of uncertainty surrounding the standing of the U.S.-China trade agreement.
At 3:10 AM ET (0710 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was largely flat at 96.993, having climbed as high as 97.207 earlier in the session.
USD/JPY was up 0.3% at 107.19, EUR/USD rose 0.1% to 1.1268, while AUD/USD rose 0.1% to 0.6911, having earlier fallen at low as 0.6858.
The dollar surged higher, and risk-sensitive currencies like the Australian dollar weakened, after White House trade adviser Peter Navarro said the trade deal with China is “over”.
These moves didn’t last long however, as Navarro quickly backtracked, stating that his comments had “been taken wildly out of context.”
U.S. President Donald Trump provided further assurance by tweeting that the deal was “still intact.”
Tensions between Washington and Beijing are already fraught, and Navarro’s comments revived memories of the trade war between the two countries, which roiled financial markets and dented global growth before being partially settled with the deal in January.
Another currency in the spotlight of late has been sterling.
The Bank of England added to its quantitative easing program last week, but it also suggested that the pace of its asset purchases is set to decline in the remainder of the year.
However, sterling failed to gain any support from this due to fears about the depth of the economic downturn, which means the market remains focused on the odds of the Bank cutting rates below zero in future. In addition, negotiations with the EU over post-Brexit trading relationships have produced little hope for a breakthrough.
“This is important for sterling’s prospects as the stalling UK-EU trade negotiations suggest that the market will likely take a glass half empty approach and keep GBP risk premium in place,” said ING, in a research note.