Dollar Drops Amidst Rate Cut Hopes And Trade Jitters

(RTTNews) - The U.S Dollar dropped against major currencies during the week ended October 17 amidst a spike in U.S.-China trade tensions. Renewed expectations of a rate cut from the Federal Reserve in October also aided the Dollar's decline.

During the week, the greenback declined against the euro, the British pound, the Australian dollar, the Japanese yen, the Swedish krona as well as the Swiss franc but held firm against the Canadian dollar. The Dollar Index which measures the Dollar's strength against a basket of 6 currencies dropped more than half a percent during the week.

Currency markets witnessed a whipsawing pattern at the onset of the week ended October 17 as a renewal in trade tensions between the U.S. and China weighed heavily on sentiment. The dollar which sank on Friday, October 10 following President Trump's fresh salvo on tariffs for China, rebounded on Monday, October 13 amidst Trump softening his tariff warnings. The greenback's fortunes suffered again as trade tensions between the U.S. and China spiked again on Tuesday as China sanctioned five American units of South Korean shipbuilder Hanwha Ocean.

Following Fed Chair Jerome Powell's speech on Tuesday, currency markets shrugged off the renewed trade tensions between the U.S. and China to focus on another rate cut by the Federal Reserve. Addressing the 67th Annual Meeting of the National Association for Business Economics, the Chairman of the Federal Reserve Jerome Powell sounded more dovish than what the markets had anticipated. Powell stated that payroll gains have slowed sharply and the downside risks to employment have apparently increased. He acknowledged that the rising downside risks to employment have shifted the Fed's assessment of the balance of risks, bolstering rate cut expectations.

The Fed's Beige book - a Federal Reserve System publication about current economic conditions across the 12 Federal Reserve Districts - released on Wednesday showed that economic activity in the U.S. was little changed and that employment remained stable in recent weeks. However, signs of credit stress at U.S. regional banks swayed sentiment in currency markets during the fag end of the week.

From the level of 98.98 on October 10, the Dollar Index slipped 0.56 percent in a week's time. The Index which had touched a weekly high of 99.47 on Tuesday dropped to the weekly low of 98.03 by Friday as Fed Chair Jerome Powell's dovish comments weighed on sentiment. The Index however recovered and closed the week's trading at 98.43.

Amidst signs of political stabilization in France, the EUR/USD pair rallied 0.28 percent during the week ended October 17. From the weekly low of 1.1542 touched on Tuesday, the pair climbed to a high of 1.1729 on Friday. The pair eventually closed at 1.1652, versus 1.1620 a week earlier as markets cheered the French govt surviving the no-confidence vote.

The British pound also gained against the greenback during the week ended October 17. The GBP/USD pair which had closed at 1.3360 on October 10 gained 0.49 percent during the week ended October 17 to close at 1.3426. The weekly trading range was wider, between a low of 1.3247 recorded on Tuesday and a high of 1.3473 on Friday. Data released during the week had showed a higher-than-expected level of unemployment and GDP readings that matched expectations.

The Australian Dollar rallied 0.39 percent against the U.S. Dollar during the past week. Minutes of the latest meeting of Reserve Bank of Australia released during the week revealed a monetary policy that was still restrictive. The AUD/USD the pair rose from the level of 0.6472 recorded on October 10 to close the week ended October 17 at 0.6497. During the week, the pair oscillated between a high of 0.6534 recorded on Monday and the low of 0.6440 recorded on Tuesday.

The U.S. dollar declined against the Japanese Yen during the week ended October 17 as the yen strengthened on hawkish signals from Bank of Japan. The USD/JPY pair closed the week at 150.64 versus 151.18 a week earlier, registering a loss of 0.36 percent. The pair ranged between the high of 152.63 recorded on Tuesday and the low of 149.38 recorded on Wednesday.

Despite President Donald Trump's comments that revealed a softer tone on China, anxiety ahead of the Federal Reserve's policy decision scheduled for October 29 weighed on market sentiment. The U.S. Bureau of Labor statistics is expected to publish the consumer price inflation readings for September later in the week. The 6-currency Dollar Index is currently trading at 98.86 versus 98.43 at close on Friday and 98.59 on Monday.

Amidst the dollar's strength, the EUR/USD pair had declined to 1.1622 from 1.1652 on Friday. The GBP/USD pair dropped to 1.3381 from 1.3426 on Friday; the AUD/USD pair decreased to 0.6483 from 0.6497 at close on Friday. The USD/JPY pair jumped to 151.72 from the level of 150.64 recorded at the end of the previous week.