Greenback holds its gains as trade war fears recede

The dollar held on to its gains on Thursday after a big rise in the previous session, but traders said the outlook for the greenback remained negative as it headed for its fourth consecutive quarter of losses.

The euro, which has largely taken its direction from the dollar in recent weeks, fell back slightly to $1.2302.

Global markets were shaken this month when US President Donald Trump moved to impose tariffs on Chinese goods.

In response, the central government in China also threatened similar measures.

But fears of a full-blown trade war have eased on hopes negotiations can bring a compromise, encouraging investors to buy the dollar.

Quarter-end and month-end flows have also boosted the dollar as global asset and fund managers rebalanced portfolios. Data showing that fourthquarter US economic growth slowed less than estimated also supported the greenback.

The dollar index, which measures the greenback against a basket of six other major currencies, was up 0.1 percent at 90.099.

Analysts said this week’s jump in the dollar looked overdone, however, and that many of the structural reasons for the US currency’s decline – trade and budget deficits and monetary tightening in other parts of the world – remained.

“Is US protectionism good or bad? The market is very undecided about this, but the dollar’s bounce was a little bit too bold from the market’s perspective,” said Ulrich Leuchtmann, head of FX strategy at Commerzbank.

The euro has been weighed down recently by comments from some European Central Bank officials.

The comments suggested that the bank is in no hurry to wind back its stimulus, given the specter of low inflation.