US Dollar Weakens as Risk Currencies Back in Favor After Signing of Phase One Trade Deal

The US dollar has lost some of its sheen and is trading somewhat weaker against other major currencies following the signing of the US-China phase one deal, as investors switch to riskier currencies and assets instead. At the time of writing, the US dollar index DXY is trading around 97.19.

On Wednesday, the US and China came together to sign the phase one trade agreement, the first concrete step towards resolving the 18-month long trade war. While the first phase has a relatively limited scope, it still marks progress in the right direction towards resolving key differences that resulted in both world leaders hiking tariffs on each other’s goods for more than a year.

The US dollar typically enjoys support in times of uncertainty as it is seen as a somewhat safer currency or asset to invest in. However, the signing of the trade deal boosted the market sentiment, bringing back a risk-on mood and turning investors away from safe havens and towards riskier trades.

However, the dollar remains supported as there is still an air of caution in the markets on how effectively the interim trade deal will help improve relations between the US and China. One of the biggest concerns surrounds the continuation of tariff hikes, while markets are also concerned about how China will successfully commit to the new targets for higher purchases of US goods.