Investing.com – The dollar was broadly lower against a currency basket on Monday after the U.S. and China pulled back from escalating their trade war, sending investors into risk-on mode and dampening safe haven demand for the U.S. currency.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was down 0.51% to 96.69 by 04:14 AM GMT (09:14 AM GMT).
The White House said on Saturday that President Donald Trump told China’s President Xi Jinping at the G20 talks in Argentina that he would not raise tariffs on $200 billion of Chinese goods to 25% on Jan. 1 as previously announced.
The two sides will hold negotiations aimed at reaching a deal within 90 days.
The euro gained ground against the dollar, with EUR/USD advancing 0.42% to 1.1363.
The pound was also higher, with GBP/USD up 0.26% to 1.2783.
The dollar was a touch lower against the yen, with USD/JPY slipping 0.12% to 113.42.
The Australian and New Zealand dollars, often viewed as barometers for global risk appetite, were sharply higher, with AUD/USD up 1.09% to 0.7386 and NZD/USDclimbing 0.84% to 0.6924.
However, some analysts warned many issues still have to be resolved for risk sentiment to stay positive in the medium term.
“A lot will depend on developments in the next 90 days, but given the U.S. and China are on different pages, we don’t think the optimism can last. We reiterate trade wars need to be framed in terms of who hurts the least and see the G20 meeting as a stronger win for the U.S.,” said Sue Trinh, head of Asia EM FX strategy at RBC Capital Markets, in a note.
Apart from trade, investors will also be turning their attention to U.S. monetary policy, ahead of an expected rate hike by the Federal Reserve at its upcoming meeting later this month, which would be the fourth rate hike this year.
“The developments over the weekend will give the Fed more confidence to raise rates in 2019,” said Michael McCarthy, chief market strategist at CMC markets.
The dollar was pressured lower last week when the market took comments by Fed Chairman Jerome Powell as an indication that the Fed could slow its program of hiking interest rates.
Powell is scheduled to testify before a congressional Joint Economic Committee later this week.
“We believe that Powell has simply toned down his hawkish tilt seen in October, with the Fed on track to deliver a hike, the fourth this year, at the FOMC meeting on 19 December, as well as another four increases in 2019,” Philip Wee, currency strategist at DBS, said in a note.