The dollar rose to a two-week high against a currency basket on Thursday, bolstered by a rebound on Wall Street and signs the united States is looking to resolve a trade dispute with China.
The U.S. currency also climbed to a three-week peak against the yen and a 10-week high versus the Swiss franc, two safe-haven assets that investors buy in times of market turmoil.
White House economic adviser Larry Kudlow said on Thursday he expects the United States and China to work out their trade differences over time and that trade barriers likely “will come down on both sides.” His comments prompted a recovery in the dollar. “(China’s) measures are unlikely to see full implementation and are designed to tilt game-theoretic odds in favor of a compromise,” said Karl Schamotta, director of global product, market strategy at Cambridge Global Payments in Toronto.
“Given its status as a surplus-earning creditor nation, China will likely make small concessions eventually, reducing some tariffs and enhancing intellectual property protections – but only those that serve broader strategic goals,” he added. China’s state news agency Xinhua said on Thursday that China will win any trade war with the United States. That belief stems from the country’s massive consumer market, which has been its one big advantage.
Beijing on Wednesday imposed tariffs on key U.S. imports including soybeans, planes, cars, beef and chemicals in response to similar measures from the United States. That spurred a rally in the yen and a sell-off in stocks on Wednesday.
In late trading, the dollar rose 0.4 percent against a basket of six currencies to 90.47. Earlier, the index hit a two-week high of 90.454. In a broader sign that global currency markets had not been rattled, a basket of currency options of the major currencies ticked toward 2018 lows of 7.8 after a spike in February. Against the yen, the dollar advanced to a 10-week high of 107.49 yen and was last up 0.6 percent at 107.42. The greenback surged to a 10-week high of 0.9639 Swiss franc , last changing hands at 0.9636, up 0.3 percent.
Data on Thursday also showed the U.S. trade deficit grew to a near 9-1/2-year high in February, with both exports and imports rising to record peaks. But the shortfall with China narrowed sharply. Beyond the trade war, investors are focused on Friday’s U.S. non-farm payrolls report, which should determine the future pace of interest rate increases and consequently the dollar’s outlook.