LONDON (Reuters) – The dollar and offshore Chinese yuan rallied on Monday after the United States and China agreed to restart their troubled trade talks, while the Japanese yen and Swiss franc were the big casualties as investors sold safe-haven currencies.
While reports of an agreement had been flagged ahead of U.S. President Donald Trump and his 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.
Global stocks jumped and investors dumped safe-haven assets.
China’s offshore yuan 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, which has fallen in recent weeks on rising expectations for Federal Reserve interest rate cuts, rose 0.4% against a basket of currencies, its index hitting 96.611 .DXY and the highest since June 21.
Versus the euro the greenback rose 0.4% to $1.1327 EUR=EBS.
“The compromise reached between Trump and Xi at the week’s G20 meeting went further than most had expected, with Trump putting the next tranche of tariffs on hold and reopening US companies’ ability to supply Huawei,” said RBC’s currency strategist Adam Cole.
However, he cautioned that there remained “plenty of scope for trade talks to break down again in the future.”
The Japanese yen, which investors tend to buy when they are looking for safety, dropped 0.6% to as low as 108.53 JPY=EBS, its weakest since June 19, before settling at 108.31.
The Swiss franc EURCHF=EBS lost 0.4% versus the euro to 1.1142 francs. It also slumped 0.7% against the dollar CHF=EBS to $0.9833.
The Australian dollar AUD=D3, sensitive to the economic fortunes of China, the country’s largest trading partner, dropped 0.4% at $0.6995, with the weaker-than-expected factory data out of China overshadowing the trade ceasefire.
Sterling slipped 0.5% to $1.2638 GBP=D3, hurt by the broad dollar rally and after a survey showed Britain’s manufacturers suffering their sharpest fall in activity in more than six years in June.
This week sees the release of crucial U.S. economic data including non-farm payrolls on Friday and non-manufacturing activity on Wednesday, which should help investors better assess whether the Federal Reserve 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 US employment overview will be a defining moment for July Fed rate expectations,” said BMO Capital Markets FX strategist Stephen Gallo.
(Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh)
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