Dollar advances to 2-week high after U.S.-China trade tensions ease

The dollar rose to two-week highs on Monday after the United States and China agreed to restart their troubled trade talks, with investors selling safe-haven currencies such as the Japanese yen and Swiss franc as tensions eased between the world’s two largest economies. While reports of an agreement had been flagged ahead of U.S. President Donald Trump and Chinese counterparty Xi Jinping’s meeting on the sidelines of the G20 meeting, the outcome was more positive than investors had expected. Trump said he would hold back on new tariffs and that China will buy more farm products, and he offered to ease restrictions on tech company Huawei.

“The concessions from both sides are hardly anything for both sides to brag about; this meeting basically just brings us back to where we were in talks in late April,” said Edward Moya, senior market analyst at OANDA in New York. “While no set timeline has been suggested by both sides, financial markets are appearing to be optimistic we could see something by autumn,” he added.

Global stocks jumped and investors dumped safe-haven assets. China’s offshore yuan also rose more than 0.5% to as high as 6.8165 yuan per dollar, near a two-month high, before easing back to 6.8476 after disappointing factory activity data.

The dollar also gained after data showed the U.S. manufacturing activity index, as measured by the Institute for Supply Management, came in slightly higher than expected in June to 51.7.
The details of the report, however, were not so stellar, with the price paid index, an inflation indicator, hitting its slowest since February 2016. The dollar, which has fallen in recent weeks on rising expectations for Federal Reserve interest rate cuts, rose 0.3% against a basket of currencies, to 96.452, with the index hitting 96.611, a roughly two-week peak.

The euro, meanwhile, fell 0.3% to $1.1339. The yen, which investors tend to buy when they are looking for safety, fell, pushing the dollar up 0.3% on the day at 108.24 yen. Earlier, the dollar hit a two-week high of 108.53 yen. The dollar also rose versus the Swiss franc, up 0.8 pct to 0.9839 franc.

This week sees the release of crucial U.S. economic data including nonfarm payrolls on Friday and non-manufacturing activity on Wednesday, which should help investors better assess whether the Fed will cut interest rates later this month. “Economic data will clearly have a more important role this week, and we can’t help but think that Friday’s U.S. employment overview will be a defining moment for July Fed rate expectations,” said BMO Capital Markets FX strategist Stephen Gallo.

Reuters

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Ed Moya

Ed Moya

Senior Market Analyst - The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geopolitical events and monetary policies around the world. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC and Bloomberg, and is often quoted in leading publications including the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University.
Ed Moya