29 January 2020

Dollar, yuan jump after U.S. makes trade concessions to China

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The U.S. dollar and offshore yuan rose on Tuesday after the Trump administration said it would delay 10% tariffs on some Chinese products scheduled to begin next month, a significant concession in the trade conflict between Washington and Beijing. reports citing Reuters.

The U.S. Trade Representative said it would delay tariffs on laptops and cellphones, among other products, set to be imposed in September.

The U.S. dollar clobbered the Japanese yen JPY=, last up 1.28% to 106.65 yen per dollar. The yen is a safe-haven asset which benefits in moments of geopolitical uncertainty and during economic downturns. The dollar index .DXY was 0.45% higher at 97.815, and the offshore Chinese yuan CNH= was 1.25% stronger at 7.0125.

Some analysts said they did not expect the currency trends to continue overnight.

“The huge positioning squeeze, notably on gold and yen crosses, inclusive of CNH, after the latest news should be largely done,” said Alan Ruskin, chief international strategist at Deutsche Bank.

“It is still entirely possible that rather than a resolution to the trade dispute, both sides live with a ‘new normal’ with a world of elevated tariffs, that may have carve-outs for politically sensitive goods.”

Other safe havens like Treasury debt also saw prices fall as investors moved money into riskier assets. The spread between 2- and 10-year Treasury yields US2US10=TWEB, the best-known measure of the yield curve, fell as low as 0.6 basis point, its flattest in more than 12 years. An inversion of the yield curve - when the spread falls below zero - is an indicator of coming recession.

The curve flattened because 2-year Treasury yields US2YT=RR, which move with market expectations of interest rate policy, rose as rate-cut bets were tempered.

2019.08.14 / 09:17
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