July 19, 2018 / 1:22 AM / 4 months ago

Dollar pulls back from one-year high after Trump comments

New York (Reuters) - The dollar fell from a one-year peak to trade just slightly higher on Thursday after U.S. President Donald Trump expressed concern about a strong currency and the Federal Reserve’s interest rate increases.

U.S. Dollar banknotes are seen in this photo illustration taken February 12, 2018. REUTERS/Jose Luis Gonzalez/Illustration

The greenback also gave back some of its gains against the Chinese yuan, which had earlier dropped to a one-year low against the dollar.

In an interview with CNBC, Trump said a strong dollar “puts us at a disadvantage,” adding that the Chinese yuan “has been dropping like a rock.”

A strong currency tends to make a country’s exports more expensive.

Trump was also unhappy about the Fed’s monetary tightening, noting he was concerned about its potential impact on the U.S. economy and American competitiveness.

The White House later did damage control after the Trump bomb, saying the president respects the Fed’s independence and is not interfering with its policy decisions.

Analysts said Trump’s comments could mean a turning point for the dollar’s upward trend this year.

The prospect of higher U.S. interest rates has propelled the U.S. dollar this year. Since hitting a more than three-year low against a basket of six major currencies in February, the dollar .DXY has gained 8.4 percent.

“We suspect the President’s comments on U.S. interest rates and currency markets will almost likely put an end to the dollar rally – and in the absence of any immediate escalation of the global trade war, it’s a mini-lifeline for emerging market and high-beta (risky) currencies elsewhere,” said Viraj Patel, FX strategist, at ING in London.

“We had always been wary of the administration’s desire for a weaker dollar and that an implicit ‘weak dollar policy’ in itself could become self-fulfilling.”

This is not the first time that Trump voiced his displeasure with a strong dollar. He told the Wall Street Journal on three separate occasions last year that the dollar was “too strong.”

Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, said Trump’s comments on interest rates and the Fed are significant because they have crossed a historic line that previous presidents have not.

Following Trump’s remarks on Thursday, the dollar index briefly turned negative, but later recovered to trade 0.1 percent higher at 95.216. The index earlier touched a one-year high of 95.652.

The dollar fell to a one-week low vs the yen, last trading down 0.3 percent at 112.47 yen JPY=.

The euro, meanwhile, was slightly lower at $1.1635 EUR=.

The dollar also cut gains against the yuan in late trading, and was last up 0.6 percent at 6.789 yuan.

So far this year, the yuan has weakened more than 4.0 percent versus the U.S. dollar.

Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by and James Thorne; Editing by Steve Orlofsky and Jonathan Oatis

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