Euro hovers near one-month lows after trade deal, focus switches to Fed
The euro steadied near its lowest in a month on Wednesday, nursing steep losses this week as investors counted the cost of the U.S.-EU trade pact and looked ahead to policy meetings from the Federal Reserve and the Bank of Japan.
U.S. and Chinese officials agreed to seek an extension of their 90-day tariff truce on Tuesday, following two days of what both sides described as constructive talks in Stockholm.
No major breakthroughs were announced, and U.S. officials said it was up to President Donald Trump to decide whether to extend a truce that expires on August 12.
The Sino-U.S. talks come after a framework deal between the U.S. and EU was announced on Sunday. The accord has evoked a mix of relief and concern from Europe, as the agreement was lopsided and skewed towards the United States.
"Markets seem to be increasingly interpreting trade agreements as symbolic and tactical rather than structural resolution," said Charu Chanana, chief investment strategist at Saxo in Singapore.
"With terms often vague and enforcement mechanisms weak, investors are assigning lower market beta to these negotiations unless backed by concrete detail."
The euro was 0.12% higher at $1.1558 in early trading after dropping for the first two days of the week and hitting a one-month low of $1.15185 on Tuesday. The euro is up 11.7% since the start of the year but on course for its first monthly drop this year.
The single currency has benefited this year from the dollar losing its lustre due to Trump's erratic trade policies, prompting investors to look for alternatives.
Sterling was at $1.3358 and the Australian dollar last bought $0.6517. The offshore yuan was little changed at 7.178 per U.S. dollar. The Japanese yen firmed a bit to 148.20 per dollar.
That left the dollar index, which measures the U.S. currency against six others, at 98.815, hovering near a one-month high. The index is set to record its first month of gains this year.
Investor focus will now switch to central bank meetings, with the Fed due to announce its policy decision later on Wednesday. The Fed is widely expected to stand pat, making comments from Chair Jerome Powell crucial to gauge the policy path.
The policy decision comes in the wake of Trump's constant demands for rate cuts, which have coincided with an unrelenting campaign of attacks on Powell by the president and administration officials.
There is speculation that Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman could issue dissents if the Fed on Wednesday holds the policy rate steady for the fifth time since December.
"While dissenting isn't uncommon, the dissents at this week's meeting may get more focus because Trump has made it crystal clear that he thinks the FOMC should be lowering interest rates," said Kristina Clifton, a senior economist at the Commonwealth Bank of Australia in Sydney.
"Dissents at this meeting may be judged as political and put a dent in perceptions of the FOMC's independence."
The BOJ is also expected to stand pat and the spotlight will be on comments from Governor Kazuo Ueda as investors hope the recent trade deal between Japan and the U.S. paves the way for the central bank to raise interest rates again this year.
