USD exchange rate slightly decreased as the US and China moved closer to a trade deal
The US dollar weakened against the euro, yuan and Australian dollar as hopes of a US-China trade deal sent investors fleeing the greenback.
The morning session of October 28 recorded a slight decrease in the USD exchange rate compared to major currencies such as the euro, yuan and Australian dollar. The reason came from the optimistic sentiment of investors after the appearance of positive signals about the progress of trade negotiations between the US and China. As the demand for safe assets decreased, the USD exchange rate gradually lost its appeal.
President Donald Trump said the United States and China are close to a major deal, and he is expected to meet with President Xi Jinping this week in South Korea.
This information caused the global stock market to increase sharply, pulling the USD exchange rate down to 98.87 points, 0.06% lower than last weekend, while the euro increased 0.13% to 1.164 USD.
Investors are still waiting for a series of important meetings of major central banks this week. The US Federal Reserve (Fed) and the Bank of Canada are expected to cut interest rates, while the European Central Bank (ECB) and Japan are expected to keep their policies unchanged.
Since the market has already predicted the Fed to cut interest rates by 0.25 percentage points, analysts believe that the USD exchange rate may face further pressure if there are signs that the Fed is about to end its quantitative tightening (QT) program. This monetary easing policy usually weakens the greenback, helping other currencies and gold benefit.
The yuan rose sharply after the People's Bank of China announced a higher-than-expected reference rate of 7.0881 CNY/USD, the highest since mid-October. This development helped the USD exchange rate fall further in the Asian region.
According to Mr. Chris Turner - Head of foreign exchange research at ING, this could be a goodwill move by China before the US-China meeting, or a sign that Beijing wants to stimulate domestic consumption. The free yuan also increased to 7.1015 CNY/USD.
The Australian dollar rose 0.55% to $0.6549 against the US dollar, helped by a dovish statement from Reserve Bank Governor Michele Bullock, who said core inflation rose 0.9% in the third quarter, higher than forecast and likely to prompt the bank to consider keeping interest rates unchanged at its next meeting. This development sent the USD further lower against the Australian dollar.
Market sentiment is buoyant as risk factors ease, according to Bannockburn Global Forex expert Marc Chandler. He said the three main factors supporting this trend are progress in US-China negotiations, the signing of more trade agreements with East Asian countries by the US, and the favorable election of Argentine President Javier Milei, who has pledged to make sweeping economic reforms.
The combination of the above factors caused the USD exchange rate to weaken across the board, while investors increased their holdings of stocks and riskier assets.