By Ankur Banerjee
SINGAPORE (Reuters) – The U.S. dollar fell on Thursday as the trade war between China and the United States weakened investor confidence, while growing confidence that the U.S. Federal Reserve will cut its policy rate this year also weighed on the dollar.
The euro rose 0.14% to $1.1664 in early trading, hitting a one-week high. The yen also strengthened to a one-week high of 150.52 per dollar.
The dollar index, which measures the U.S. currency against six other currencies, fell 0.16% to 98.512, heading for a weekly decline of 0.33%.
Investor attention has been focused on the trade dispute between the world’s largest economies, with US officials criticizing China’s expansion of rare earth export controls as a threat to global supply chains.
China’s Commerce Ministry defended the controls, pointing to U.S. measures on Chinese products and companies and calling U.S. criticism hypocritical.
TRUMP-XI MEETING
Amid the tit-for-tat action, US President Donald Trump still hopes to meet Chinese President Xi Jinping in South Korea this month, US Treasury Secretary Scott Bessent said.
Vasu Menon, managing director of investment strategy at OCBC, noted that the latest trade measures will take effect in November after Trump and Xi meet.
“If the meeting goes ahead, some of last week’s measures could be watered down or even dismantled and presented as successful outcomes.”
The parties have maintained lower tariffs and continued flows of rare earths under a six-month trade truce that has been repeatedly extended by 90-day periods. Bessent has suggested that a longer extension was possible.
“An extension, rather than a grand deal that resolves all trade issues, is probably the most realistic second-best outcome compared to the alternative of escalating retaliation,” said Joseph Capurso, head of foreign exchange at Australia’s Commonwealth Bank.
The Australian dollar fell 0.4% to $0.6485 after data showed unemployment hit a near four-year high in September, adding to the case for interest rate cuts.
The Australian dollar, often considered an indicator of risk appetite, has been volatile this week due to trade tension as traditional havens including the Swiss franc gained value. The franc last rose to 0.7952 per US dollar.
CUT BETS BY THE FED
As the US government shutdown enters its third week, investors have been focusing on comments from policymakers to get a sense of the Federal Reserve’s near-term path.
Traders have priced in 48 basis points of easing this year, signaling greater confidence in cuts at the Federal Reserve’s two remaining policy meetings this year.
U.S. economic activity has changed little and employment has largely stabilized in recent weeks, the Fed said on Wednesday, although there were signs of labor market weakness and a slight pullback in spending.