The dollar hit a three-week high in Europe on Huawei relief and rate talk
The dollar hit a fresh three-week high against its developed-market peers in early trading in Europe Tuesday, after Federal Reserve Chairman Jerome Powell indirectly argued against cutting interest rates in the near term due to the already-high level of corporate debt.
Business debt has clearly reached a level that should give businesses and investors reason to pause and reflect, Powell said at a conference, noting that corporate borrowing at a record level of around 35% of corporate assets.
Even so, he pushed back against suggestions that the corporate debt situation resembled the days before the financial crisis in 2007, saying the comparison was “not fully convincing”.
At 03:00 AM ET (0700 GMT), the dollar index, which measures the greenback against a basket of six major currencies, was at 97.928, having hit 97.953 earlier, its highest level since April 26.
In part, that reflected a sharp rise against the Aussie and kiwi after Reserve Bank of Australia Governor Philip Lowe said the bank would examine the case for cutting its cash rate at its next policy meeting in June.
Elsewhere, the Chinese Yuan remained broadly stable as the trade tension between the U.S. and China subsided marginally. The Commerce Department said it would offer U.S. companies a temporary exemption – in specific cases – from the ban on selling to telecoms giant Huawei that was at the heart of Monday’s volatility. Europe’s stock markets opened with a modest relief rally.
In Europe, both the euro and the British pound remain under pressure from the revived threat of a hard brexit and from the rhetoric around the European parliament elections that start on Thursday.
The EUR/USD pair was down 0.2% at $1.1149 while GBP/USD was also down 0.2% at a four-month low of $1.2703, amid reports that the moderate wing of the Conservative Party aims to stop the next party leader (and Prime Minister) from taking the U.K. out of the EU without transitional arrangements. The news underlines how hard it will be to break the political deadlock around Brexit.