The dollar moved away from its three-year lows as some investors decided that it may have come to a cross roads amid rising concern regarding the U.S. view on global trade. Investors also assessed the broadening interest rate differentials between U.S. and European and British bond markets, all of which are maintaining the dollar’s short-term position.
“We are a bit more constructive about the dollar’s outlook,” said Nick D‘Onofrio, chief executive of a hedge fund.
Ten-year yields adjusted for inflation between the U.S. and Europe are approaching a six month-high of 1.3 percent, while the euro is maintained close to a two-year high versus the greenback.
U.S. President Donald Trump has implied import tariffs on washing machines and solar panels which has dampened the view global trade when its current recovery has powered optimism for a more powerful global economy. On Friday, Trump is scheduled to give the closing address at the Davos summit of political and business leaders, analysts anticipate him to strike a protectionist tone.
“If Trump decides to strike a strong anti-trade stance, it will spark a selloff in global trade-oriented currencies such as the Korean won and the Chinese yuan and eventually weigh on the U.S. dollar as well,” said Viraj Patel, an FX strategist.
The dollar gained 0.1 percent to 90.51 against a basket of major currencies, which was not too far from last week’s three-year low of 90.11.
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The euro dropped against the dollar, down 0.2 percent at $1.2236 following last Wednesday’s two-year high of $1.2323.
The euro has had an exceptional rally year to date, driven by the increased optimism that a strengthening economy would encourage the European Central Bank to exit from its years of policy stimulus earlier than previously predicted.
The Japanese yen moved closer to the day’s highs versus the greenback near 110.40 after Bank of Japan Governor Haruhiko Kuroda repeated his commitment to monetary easing.
“Today’s price action talks more about how the market is preoccupied with the idea that the BOJ will adjust its monetary policy at some stage in the future,” said Minori Uchida, chief FX analyst at a Japanese bank.
Relatively high-yielding currencies including the Australian and Canadian dollars lost he most versus the dollar, by 0.7 percent and 0.3 percent each. The British pound held its own against the euro after hitting a post-Brexit high of $1.40 in early Asian trading.