The US dollar fell broadly on Monday, as currencies battered by trade tensions between the United States and China staged a comeback after leaders from the two countries declared a truce on tariffs. China's yuan and several trade-dependent currencies made strong advances against the greenback as investors sold the safe-haven US currency and bought up riskier assets.
China and the United States agreed to a ceasefire in their bitter trade war on Saturday after high-stakes talks in Argentina between US President Donald Trump and Chinese President Xi Jinping. US Treasury Secretary Steve Mnuchin said on Monday there was a clear shift in tone at Buenos Aires from past discussions with Chinese officials, as Xi offered a clear commitment to open China's markets to US companies.
The offshore yuan gained about 1 percent to 6.879, while the Aussie - viewed as a barometer of Chinese growth - was 0.5 percent higher against the greenback. The New Zealand dollar gained 0.6 percent, while the US dollar lost 0.6 percent against the Canadian dollar.
"The G20, the dinner in particular, has ignited quite a robust risk rally and that's coming at the dollar's expense," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "That's mainly because the dollar has been the chief beneficiary of all the trade war rhetoric over the past several months," Manimbo said.
Emerging market currencies, which have suffered in recent months amid increased trade-related tensions, advanced and MSCI's index for emerging currencies was up 0.6 percent. "It's pretty much a sigh of relief across the board," said Brad Bechtel, global head of FX at Jefferies, in New York.
Bechtel, however, warned that investors should treat the latest trade developments with caution. "You always have to take it with a grain of salt because at any moment a tweet or headline of some sort could knock things off kilter," he said.
The dollar index, which measures the greenback against a basket of six major currencies, was 0.2 percent lower. The euro was 0.2 percent higher against the greenback. With trade tensions taking a back seat for the moment, investors' attention is likely to turn to US monetary policy, analysts said.
The Federal Reserve is expected to raise interest rates again later in December but recent comments from central bank officials about how many more hikes are needed in the current cycle have hurt the dollar in recent sessions. Sterling fell on Monday to its lowest level since the end of October as growing concerns about British parliamentary approval for a proposed Brexit deal prompted investors to sell the currency.
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