Dollar drops as North Korea fires missile ahead of Trump-Xi meeting

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The dollar came under pressure on Wednesday after North Korea fired a ballistic missile into the sea ahead of a summit between U.S. and Chinese leaders, losing its grip on gains made earlier against the yen.

The missile firing a day before talks on economic and security issues between U.S. President Donald Trump and his Chinese counterpart Xi Jinping further diminished investor risk appetite in a week that has seen a flight to safety.

Trump’s consistently harsh rhetoric on China has raised concerns about the summit and weighed on the dollar, as has speculation that the U.S. president will face challenges implementing his promised growth-boosting policies after his administration failed to pass healthcare reform.

The dollar edged down 0.1 percent to 110.63 yen JPY=EBS, off a day’s high of 110.92 and well below last Friday’s 10-day peak of 112.19 yen.

The dollar index, which tracks the U.S. currency against a trade-weighted basket of six peers, was slightly down on the day at 100.48 .DXY, as slumping U.S. Treasury yields also gave investors little incentive to buy the greenback.

“It’s a bit of a mixed picture. Some downside risk (for the dollar) on the upcoming meeting between Chinese president Xi Jinping and Trump but to be honest, so far it’s been the case that his (Trump’s) rhetoric is a lot worse than his policy actions,” said Lee Hardman, currency strategist at MUFG in London.

Though the perceived safe-haven Japanese currency tends to gain in times of geopolitical tension or risk aversion, the dollar got some help from Japanese importers on a “Gotobi” date the fifth day of the month and dates that are multiple of five on which accounts are usually settled.

Director at foreign exchange research firm Global-info Co in Tokyo, Kaneo Ogino said, “Today, there is real demand for the dollar, on ‘gotobi,’ so its downside should be limited.”

The U.S. non-farm payrolls report out on Friday will be watched keenly by investors. Economists polled by Reuters predict the U.S. economy will have added 180,000 jobs in March.

The euro edged slightly higher by 0.1 percent to $1.0676 EUR=EBS.

Investors also kept a close eye on the Czech crown EURCZK= amid rising speculation that the Czech central bank could soon drop its cap on the value of the currency against the euro. It was last down 0.1 percent to the single currency.

“I think they (Czech National Bank) are telegraphing it (dropping the cap), so they must have an intention of removing it.”

Currency strategist with BMO Capital Markets, Stephen Gallo said, “I suspect that they’re watching very closely the events taking place in France though, ahead of the Presidential elections. I doubt they’ll remove it before we get a result there.”

The Australian dollar also crept higher to $0.7577 AUD=D4, pulling away from a three-week low of $0.7545 hit in the previous session when investors pared bets that the Reserve Bank of Australia would hike rates this year.

Source: Reuters

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