Dollar drifts lower as US-China trade talks outcome awaits

London

THE dollar drifted lower against other major currencies on Wednesday as investors awaited fresh developments in the US-China trade talks. As the US and China work to narrow their differences enough to sign a "phase one" trade deal as early as this month, hopes of a breakthrough have boosted sentiment across world markets.

But after sizeable moves on Tuesday, which included a strengthening in China's offshore yuan to three-month highs against the dollar, currency markets moved into wait-and-see mode.

"The market now wants confirmation that there is a venue, that this (phase one deal) will be signed," said Jane Foley, senior currency strategist at Rabobank. "A lot of good news was built into the price and unless we get something more, a little bit of disappointment will come through."

At 1130 GMT the dollar index, which measures the dollar's value against other major currencies, was a fifth of a per cent lower at 97.798 after rising 0.4 per cent the previous day. The dollar was 0.2 per cent softer at 109.01 yen, although still within sight of a three-months high hit last week at 109.285.

The euro, meanwhile, was a touch firmer at US$1.1089, having dropped 0.5 per cent against a broadly-robust greenback on Tuesday. The Swiss franc changed hands at 0.9929 to the dollar, little changed on the day, following its 0.5 per cent fall the previous day.

Analysts said better-than-expected US economic data in the past week had eased expectations for further easing from the US Federal Reserve and that this boded well for the dollar outlook. A survey of the vast US service sector published on Tuesday showed that business sentiment had improved in October from a three-year low in September.

The rebound is a welcome sign for dollar bulls as a fall in the service sector index would have suggested that the malaise among manufacturers hit by the trade war was also infecting the service sector. That followed a strong US employment report on Friday.

"Latest data has helped eased concern about a sharp slowdown in growth," said Lee Hardman, a currency strategist at MUFG.

Data released on Wednesday showed German industrial orders rose more than expected in September, offering a glimmer of hope for an export-powered economy hit hard by global trade tensions.

The generally positive mood supported the risk-sensitive Australian dollar, which changed hands at US$0.6899. It was little changed on the day but has maintained gains of 3.4 per cent since hitting a 101/2-year low on Oct 2.

China's offshore yuan steadied around 7.00 per dollar in Europe after having risen to a three-month high of 6.9867 to the dollar on Tuesday on hopes for a trade truce. The currency has gained almost 3 per cent from its record low in the offshore trade marked in early September. REUTERS