January 13, 2020 / 1:38 AM / 12 days ago

Dollar firms as Sino-U.S. trade deal day draws near

SINGAPORE (Reuters) - The dollar began the week supported by optimism on the Sino-U.S. trade front, while the pound wobbled lower after weekend hints at an interest rate cut from a Bank of England policymaker.

FILE PHOTO: U.S. and Chinese flags are seen in front of a U.S. dollar banknote featuring American founding father Benjamin Franklin and a China's yuan banknote featuring late Chinese chairman Mao Zedong in this illustration picture taken May 20, 2019. REUTERS/Jason Lee/Illustration

A U.S.-China trade deal is due to be signed at the White House on Wednesday, though talks on a phase two package are likely to drag on for months.

The imminent deal, ending an 18-month trade dispute, has investors hoping for a revival in global growth. That offered support to trade-exposed Asian currencies such as China’s yuan and the Australian dollar, as well as the greenback.

“Both sides should produce a lot of positive headlines, really talking up the deal and sounding positive about the outlook,” said Westpac FX analyst Sean Callow.

“The more difficult questions on trade can come later. I think for this week the vibe on the trade side will be very positive and that may help sentiment a bit.”

The mood pushed the dollar 0.1% firmer against the safe-haven Japanese yen JPY= and Swiss franc CHF= early in Asian trading hours. A greenback bought 109.56 yen and 0.9731 francs.

Against a basket of currencies the dollar edged higher to 97.410 .DXY and the Chinese yuan CNH= held at a five-month high in offshore trade.

The Australian dollar AUD=D3 held firm at $0.6898 while the New Zealand dollar NZD=D3 was steady at $0.6636 and the euro EUR= marginally weaker at $1.1114.

Moves were constrained by caution over the trade deal, given Beijing and Washington have still not formalised the finer details of what will actually be signed.

Volumes were also light owing to a holiday in Japan.

The biggest mover was the British pound GBP=, which dropped 0.2% to $1.3041 and flirted with a two-week low after dovish comments from Bank of England policymaker Gertjan Vlieghe.

He offered the latest hint at policy easing, telling the Financial Times newspaper that he would vote for a cut in interest rates later this month, barring an “imminent and significant” improvement in growth data.

Futures pricing pointed to an implied probability of a rate cut at the end of the month of one-in-four. BOEWATCH

“Are these hollow threats...designed to try and curb the appreciation in the pound, or are they really going to try and follow through?” said Chris Weston, head of research at Melbourne brokerage Pepperstone.

“The market’s saying on balance that they’re hollow thoughts (but) a rate cut is not out of the question.”

More broadly, the morning’s moves partly reversed Friday’s dip in the dollar when data showed U.S. nonfarm payrolls missed forecasts, while wages and hours worked were soft.

Reporting by Tom Westbrook; editing by Jane Wardell

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