By Saikat Chatterjee
LONDON, Feb 12 (Reuters) – The dollar was on track for its
longest winning streak in two years on Tuesday, as hopes of a
breakthrough in U.S-China trade talks and a tentative deal to
avoid a U.S. government shutdown encouraged investors to cover
short bets on the currency.
At the end of 2018, the dollar was the consensus short trade
among hedge funds, as traders bet the U.S. Federal Reserve would
pause in its rate increases and other major economies would grow
But while the Fed held interest rates steady last month, the
case for buying the euro and the pound has weakened steadily.
Economic data in Europe have deteriorated and Brexit concerns
have dogged the British pound.
"It is remarkable for the dollar to post this kind of rising
streak after a dovish Fed last month, and it shows how cautious
investors are becoming over the outlook of the global economy,"
said Lee Hardman, a currency strategist at MUFG in London.
The dollar has gained for nine consecutive sessions, its
longest series of gains since February 2017, according to
Refinitiv data. It was a touch higher at 97.063 on
On Jan. 30, the Fed said it would be "patient" before
raising rates again and signaled its balance sheet would remain
larger than previously expected.
Also helping the dollar were talks on trade between the United
States and China. The talks resumed in Beijing this week after
an earlier round ended in Washington last week without a deal,
and the top U.S. negotiator said a lot remained to be done. "The dollar is the market’s pet currency at present
regardless of whether concerns about the global economy are on
the rise or whether (there are) risks in connection with the
trade conflict between China and the U.S. as well as the
government shutdown," Commerzbank currency strategists said.
U.S. lawmakers reached a tentative agreement on border-
security funding that might help avert another government
shutdown, due to start on Saturday. Despite the market concerns, overall currency volatility has
fallen in recent weeks. A Deutsche Bank gauge is
trading near its lowest in six months at 7.5 and has fallen by
nearly a quarter from early January highs.
The euro, meanwhile, has suffered from weak European
economic data. On Tuesday, it held near the 2
1/2-month low of $1.1267 hit the day before.
Sterling was steady at $1.2878 before a statement
by Prime Minister Theresa May to lawmakers in parliament.
With just weeks to go before Britain leaves the European
Union on March 29, investors are growing increasingly worried
that a Brexit deal may not be completed in time.
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