Euro Surges vs Dollar as Trade Truce Report Trumps ECB

Investing.com - The U.S. dollar retreated across the board on Thursday after a report suggesting a trade truce between the U.S. and China lent wings to risk assets of all stripes, although it pared losses as the White House denied the report.

Bloomberg cited people familiar with the situation as saying that the White House was preparing to make a limited trade agreement with China that would delay and even unwind some U.S. tariffs in exchange for Chinese promises to respect intellectual property rights and start buying U.S. agricultural goods again.

The report was interpreted as a sign that Trump is concerned about the impact of his trade policy on the U.S. economy as he prepares for his re-election campaign next year.

However, the dollar pared losses later as another report, by CNBC, cited an unnamed senior White House official denying the Bloomberg story.

The report had its biggest effect on commodity-heavy and emerging currencies. The Russian ruble rose by over 1% against the dollar, while the Korean won strengthened by 0.9%.

The news also caused the euro to turn around after it had initially sunk in response to the European Central Bank's latest package of monetary easing measures earlier in the day. The ECB cut its key deposit rate to -0.5% and said it would resume quantitative easing on an open-ended basis against the backdrop of a slowdown that was "more serious than expected" in the words of its outgoing President Mario Draghi.

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, fell 0.2% to 98.390 as of 10:26 AM ET (14:26 GMT). The euro recovered to $1.1045, up 0.3% on the day, up from an intra-day low of $1.0927 after the ECB's decision.

The ECB's action would have normally raised the pressure on the Federal Reserve to follow suit at its own policy meeting next week. However, given that the reported move by the White House would remove some of the uncertainty that has been weighing on the U.S. economy, it may also weaken the argument for the Fed to loosen policy.

The Japanese yen, a safe-haven in times of market turmoil, fell with USD/JPY rising 0.1% to 107.92.

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