Dollar Slips on Profit-Taking, China Seizure of U.S. Submersible

  • Offshore yuan reaches record low amid new China-U.S. friction
  • Thin liquidity, skittish trading as traders sidestep risk

The dollar pared its gains for the week, losing some upward momentum as signs of fresh U.S.-China tension and end-of-week profit-taking robbed the greenback of traction amid moderate FX flows and sparse liquidity. Friday trading was driven by risk avoidance, a theme likely to continue next week as markets wind down ahead of year-end holidays, traders said.

The dollar fell less than 0.1% as measured by the Bloomberg dollar index, the drop coming as the 10-year Treasury yield retreated from a session high to trade near its low for the day. Traders reacted to headlines that China had seized an unmanned U.S. submersible in the South China Sea. The Chinese currency fell to a record low in the offshore market following the reports, though traders there also complained of sparse liquidity and light flows.

  • Earlier, the dollar was attempting to pare its small overnight drop until a report that November U.S. housing starts fell more than expected took the wind out of its sails
  • USD is narrowly mixed vs its G-10 peers as losses vs EUR, JPY and GBP are offset by gains vs commodity FX, notably AUD and NZD; EUR/USD is holding its first gain in four days after setting a fresh session high at 1.0474 after the China report; offers and small stop-loss buy orders were filled around that high, traders in Asia and London said
  • Further offers are in place ahead of 1.0500
  • USD/JPY is trading ~117.87 after the pair was capped by offers above 118.45, traders in Asia and London said; USD filled bids and stop-loss sell orders from 117.95 down to 117.60 before the pair found a base at 117.47, a new low for the day
  • USD/CNH is +0.5% at 6.9645, earlier touching 6.9692
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