Dollar weakens as U.S. and EU trade talks come into focus

The U.S. dollar slipped broadly against its currency rivals Wednesday. Traders and strategist had been focused on a meeting between leaders of the U.S. and the European Union in Washington.

The EU’s Jean-Claude Juncker is met with President Donald Trump Wednesday afternoon. with a Trump saying that he hoped to work out a fair trade deal with the EU, sitting with Juncker in the Oval Office, adding “we are close partners, allies, not enemies. We have to work together.”

Late Tuesday, Trump advocated a free-trade pact between the U.S. and the EU, in a tweet.

“The talks aim to avert a new round of tariffs on European car exports to the U.S.,” wrote RBC chief currency strategist Adam Cole. Germany is the largest European car exporter. “Ahead of the meeting [EU Trade Commissioner Cecilia] Malmstrom said they would be seeking to ‘de-escalate the present situation and prevent it from worsening.’”

But after Trump called the EU, along with China, a currency and interest-rate manipulator last week, the talks present a fair amount of risk to currency markets, analysts said.

Meanwhile, the Washington Post reported that Trump was looking for a 25% auto tariffs this year.

The euro EURUSD, +0.3167%  reclaimed its strength late Wednesday in New York after having dipped into negative territory during the trading day. The shared currency last bought $1.1701, up from $1.1685 late Tuesday.

The ICE U.S. Dollar Index DXY, -0.44% which measures the greenback against six rivals, was down 0.3% at 94.352. The broader WSJ Dollar Index BUXX, -0.41%  was 0.3% down at 88.02.

While the greenback weakened across the board, it maintained relatively tight ranges. Along with blasting the EU and China, Trump said the stronger dollar made the U.S. less competitive on the global market.

The focus will remain on the EU later this week, with European Central Bank policy makers due to meet Thursday. While the central bank isn’t expected to change its current path—tapering asset purchases into year-end but only raising interest rates well into 2019—euro traders will be watching for updates on economic growth forecasts for the second half of the year.

Elsewhere on the trade front, Trump also tweeted at that China was targeting U.S. farmers. The president unveiled a $12 billion plan to aid farmers hurt by trade tariffs late Tuesday.

China’s yuan, along with most of emerging-market currencies, strengthened against the buck on Wednesday. One dollar last bought 6.7697 yuan, down 0.3%, in the more restrictive onshore market USDCNY, -0.3210% and 6.7671 yuan in the more freely traded offshore market USDCNH, -0.7708% down 0.6%.