Dollar Pulls Back as U.S. Government Shutdown Risk Recedes

Investing.com -- After an eight-day winning streak, the dollar has finally pulled back in early trading in Europe Wednesday, as demand for safe-haven assets weakens on signs that the U.S. federal government won’t shut down again this year.

President Donald Trump said Tuesday he’s not happy with a tentative deal in Congress that would allocate barely a quarter of what he had sought for a wall on the U.S.’s southern border, it was only part of an overall $23 billion that has now been allocated to border security.

In addition, risk appetite has been bolstered by a strong hint from Trump that he will push back a March 1 deadline for the imposition of new tariffs on Chinese imports if the U.S. and China make enough progress on addressing various trade issues in the meantime.

“If we’re close to a deal…I could see myself letting that slide for a little while,” Trump said. The Chinese yuan rose overnight on the comment, recouping most of w

At 03:15 AM ET (0815 GMT), the dollar index that tracks the greenback against a basket of major currencies was at 96.82, down from a 2019 high of 97.18 that it set overnight.

Elsewhere, the euro and British pound rose slightly, but the euro’s gains were capped by comments from Dutch central bank head Klaas Knot, who told the Financial Times that the current slowdown in the euro-zone economy “might last a few quarters.”

Knot is one of the European Central Bank’s most hawkish policy-makers and his caution illustrates the extent to which the ECB has scaled back its ambitions to return interest rates to normal levels as the economy has weakened.

Sterling edged up to $1.2898 after the TV channel ITV (LON:ITV) reported comments from U.K. Prime Minister Theresa May’s chief negotiator Olly Robins in which Robins predicted May would offer parliament in March a choice between her EU withdrawal deal or a lengthy extension to the Brexit process.898

Such an approach would appear to reduce the risk of the U.K. crashing out of the EU on March 29 without transitional arrangements to safeguard trade with its largest trading partner.

Also overnight, the kiwi rose over 1.5% against the U.S. dollar after the Reserve Bank of New Zealand said it would likely keep its key rate unchanged for the rest of the year, defying expectations of rate cuts. The market’s focus Wednesday will turn to Sweden’s Riksbank, which raised its key rate for the first time in seven years in December, but which may temper its outlook at its policy-making meeting today.

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