May 21, 2018 / 7:36 PM / in a year

FOREX-Dollar hits five-month peak as U.S.-China trade tensions ebb

    * U.S.-China truce on tariffs boosts market risk tone
    * Dollar hits four-month high vs yen, six-month peak vs euro

 (Updates prices in text, table, adds comment)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 21 (Reuters) - The dollar advanced to a five-month high against a
basket of currencies on Monday, as news of a truce between the United States and
China on trade tariffs prompted investors to pare back short positions on the
    Investors have been short the dollar since July of last year, but the dollar
index has rallied nearly 7 percent since mid-February. The dollar has been
mainly bolstered by generally solid U.S. economic data that has backed the Federal
Reserve's monetary policy tightening stance this year. 
    The prospect of a resolution to the U.S.-China trade tensions has further added
to the dollar's shine.
    The world's two largest economies have agreed to drop their tariff threats for
now. U.S. Treasury Secretary Steven Mnuchin and President Donald Trump's top
economic adviser, Larry Kudlow, said on Sunday the agreement reached by Chinese and
American negotiators on Saturday set up a framework for addressing trade imbalances
in the future.
    "In the absence of major economic releases, the headline on the easing of trade
tensions with China has been positive for the dollar, although the dollar in general
has been doing a little bit better," said Sireen Harajli, FX strategist at Mizuho
Bank in New York.
    "Economic data in the U.S. has been performing fairly well, in contrast to other
parts where things have not been so great," she added.
    Harajli cited concerns about Japan's economy, which contracted in the first
quarter of 2018, and the euro zone, with Germany, the biggest economy in the region,
revising down its first-quarter growth.  
    In late trading, the dollar index rose 0.1 percent to 93.681 after earlier
hitting a five-month high above 94.
    This week, the dollar's fate rests on the Fed, with several of its officials
speaking and the minutes of the U.S. central bank's last monetary policy meeting due
to be released on Wednesday.
    Investors will focus on the Fed's inflation outlook. Higher inflation could mean
faster interest rate hikes and a stronger dollar.
    In other currency pairs, the dollar rose to a four-month high against the yen
 at 111.39 and was last at 111.10, up 0.3 percent. The yen has been pressured
by recent weaker Japanese data, a U.S.-China trade war truce and elevated U.S.
Treasury yields, analysts said.
    The euro, meanwhile, was flat against the dollar at $1.1775, after
earlier falling to its lowest level since around mid-November. Europe's single
currency has been affected by concerns about political uncertainty in Italy.
    This week will bring about a further test for stubborn euro bulls with the
release of May flash PMI data on Wednesday, with markets waiting to see whether the
first-quarter slowdown in Europe has spilled over to subsequent months.  
    Currency bid prices at 1515 EDT (1915 GMT):
 Description  RIC        Last       U.S.       Pct      YTD     High Bid   Low Bid
                                    Close      Change   Pct                
                                    Previous            Change             
 Euro/Dollar             $1.1774    $1.1775    -0.01    -1.85   +1.1781    +1.1717
 Dollar/Yen              111.0700   110.7400   +0.30    -1.42   +111.3900  +110.7400
 Euro/Yen                130.80     130.36     +0.34    -3.24   +130.9900  +130.3800
 Dollar/Swis             0.9974     0.9975     -0.01    +2.37   +1.0001    +0.9968
 Sterling/Do             1.3416     1.3471     -0.41    -0.71   +1.3483    +1.3391
 Dollar/Cana             1.2806     1.2880     -0.57    +1.82   +1.2890    +1.2805
 Australian/             0.7571     0.7511     +0.80    -2.95   +0.7573    +0.7504
 Euro/Swiss              1.1745     1.1742     +0.03    +0.48   +1.1759    +1.1708
 Euro/Sterli             0.8776     0.8740     +0.41    -1.20   +0.8781    +0.8723
 NZ                      0.6930     0.6910     +0.29    -2.20   +0.6934    +0.6885
 Dollar/Norw             8.0607     8.1124     -0.64    -1.78   +8.1370    +8.0624
 Euro/Norway             9.4928     9.5548     -0.65    -3.61   +9.5585    +9.4920
 Dollar/Swed             8.6924     8.7525     -0.65    +5.98   +8.7812    +8.6926
 Euro/Sweden             10.2359    10.3026    -0.65    +4.03   +10.3084   +10.2340
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee
in London
Editing by Marguerita Choy and Paul Simao)
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