US Dollar and Chinese Yuan Gain as US-China Trade Tensions Ease

(2 July 2019) The renewed engagement on trade between the China and the United States, the world’s largest economies, sparked positive reactions from the financial markets as most analysts were not expecting positive trade news. The US dollar, which had been depreciating based on rising expectations that the US Federal Reserve would cut interest rates, strengthened on the heals of the trade talks in which US President Donald Trump agreed to postpone new tariffs of 25% on Chinese imports valued at $300 billion and offered to ease restrictions on tech company Huawei. 

• The appreciation in the US dollar came as investors started selling safe heaven currencies such as the Japanese Yen and Swiss franc. The US dollar appreciated 0.3% against the yen and 0.8% against the franc.
• The US manufacturing PMI also pushed the dollar up as the announced level (51.7) was higher than market expectations in June 2019.
• China’s offshore yuan, permitted to move within a range of +/- two percent from the daily midpoint set by the Central Bank, rose more than 0.4 percent to as high as 6.8165 yuan per dollar before easing back to 6.8476 yuan per dollar after disappointing factory activity data.

With no official deadlines announced for actions to resolve the ongoing trade conflict, market sentiment is open to the elevated volatility.