LONDON (Reuters) – The dollar stabilized against its competitors on Monday as risk sentiment improved following comments and signs from the Federal Reserve. US and Mexican negotiators campaigned for a common position on the North American Free Trade Agreement (NAFTA).
FILE PHOTO: US dollar banknotes can be seen in this photo shoot from February 1
At a symposium in Jackson Hole, Wyoming, Jerome Powell emphasized on Friday the Fed's move to raise interest rates despite criticizing President Donald Trump for higher borrowing costs.
The Treasury yield curve reached its lowest level since 2007 on Friday – a factor seen as support for the dollar – following Powell's speech.
His comments did little to change market expectations for interest rate hikes in September and December, and disappointed some dollar bulls hoping for a more restrictive message.
"There were clearly those in the market who were unlawful and thought that the Fed could switch to an autopilot mode, as in 2004. Obviously, Powell prefers a phased approach," said Ulrich Leuchtmann, Head of FX and Emerging Market Research at Commerzbank AG in Frankfurt.
"The return of risk appetite is negative for the dollar and its attractiveness as a safe haven," he added.
The dollar index against a basket of six major currencies at GMT 0800 was broadly unchanged at 95,225, after falling more than 0.5 percent in the previous session.
"Powell's speech was nothing out of the ordinary," said Mitsuo Imaizumi, chief forex strategist at Daiwa Securities.
"He remained in the current political development and this means that the flattening of the US yield curve should continue."
In addition to the positive sentiment, US and Mexican negotiators seemed close to reaching a common position on the North American Free Trade Agreement (NAFTA), with the Mexican Minister of Economic Affairs saying on Sunday that the talks had "made progress".
The Mexican peso rose 0.6 percent to $ 18.81. The talks should be continued later on Monday.
A prospective trade deal with Mexico "takes a small piece of the global trade war risk off the table," said Robert Carnell, chief economist and research director for Asia-Pacific at ING.
The euro barely changed to $ 1,1169, having reached as high as $ 1,1654, the highest since August 2. The single currency had risen more than 0.7 percent on Friday.
The extended Chinese yuan is rallying in the onshore market to as high as $ 6,861 per dollar, the strongest since Aug. 8.
The Yuan rose 0.8 percent on Friday after People's Bank of China changed its method of fixing the daily average of the yuan in the midst of broad dollar strength and sustained trade tensions between Washington and Beijing.
Other emerging market currencies, including the Turkish lira and the South African rand, remained broadly stable against the dollar.
A broad decline in emerging market currencies, particularly the Turkish lira, earlier this month was an important source of greenback strength.
Additional coverage by Shinichi Saoshiro in Tokyo; Editing by Alison Williams