Dollar pinned near one-month low as risk appetite returns

[August 28, 2018]   By Saikat Chatterjee

LONDON (Reuters) - The dollar fell to a near one-month low against a basket of its rivals on Tuesday as a U.S.-Mexico trade deal aimed at overhauling the North American Free Trade Agreement boosted appetite for riskier assets.

With the Chinese central bank allowing its currency to strengthen against the dollar via its daily fixings, some strategists said trade tensions may be receding for now.

"The Chinese authorities have stepped in to calm the currency markets and risk appetite is slightly positive," said Alvin Tan, a currency strategist at Societe Generale in London.

Prior to the market opening, the People's Bank of China (PBOC) raised its daily yuan midpoint by almost 0.7 percent, the most in nearly 15 months.

On Friday, the central bank said it was adjusting its methodology for fixing the yuan's daily midpoint in order to keep the currency market stable amid ongoing trade tensions between Washington and Beijing.

Against a basket of its rivals, the dollar hit its lowest since Aug. 1 at 94.602 in thin London trading before consolidating its losses.

The United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA), putting pressure on Canada to agree to new terms on auto trade and dispute settlement rules to remain part of the three-nation pact.

A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

"The deal provides the impression that the U.S. President is less interested in causing a row at the moment but is making an effort to come home with constructive results from the theaters of trade war," said Esther Reichelt, an FX strategist at Commerzbank.

The euro edged 0.2 percent higher to $1.1696, despite worries that Italy's public deficit could exceed the European Union's ceiling of 3 percent of gross domestic product, according to senior officials.

Among the major losers in the currency markets was sterling as London traders returned after a long weekend to more negative headlines on the Brexit front.

Against the euro, sterling hit its weakest level in 2018 after the French Prime Minister Edouard Philippe asked his ministers to prepare contingency measures in case of a no-deal Brexit.

(Reporting by Saikat Chatterjee; Editing by Mark Potter)

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