January 13, 2020 / 4:59 AM / a month ago

FOREX-Imminent Sino-U.S. deal signing lifts Asian currencies; sterling slips

* Sino-U.S. deal spurs optimism

* Chinese yuan hits fresh 5-month high, yen near 7-month low

* Sterling slips on rate-cut risk

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

By Tom Westbrook

SINGAPORE, Jan 13 (Reuters) - The imminent signing of a preliminary Sino-U.S. trade deal helped Asian currencies rally on Monday, but sterling fell on fresh hints of a Bank of England rate cut.

The U.S.-China Phase 1 agreement, due to be signed at the White House on Wednesday, marks the first step toward ending a damaging 18-month trade dispute between the world’s two largest economies.

“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.”

Relief that fears of conflict in the Middle East were fading, despite ongoing tensions centred on Iran, also helped sentiment, drawing investors away from safe havens like gold and the yen.

The trade-exposed Chinese yuan and Australian dollar each rose 0.3% to lead broad gains.

The yuan - the currency most attuned to Sino-U.S. trade developments - crossed the 6.9 per dollar mark to hit a fresh five-month high of 6.8959.

The Aussie hit a one-week high of $0.6919. The New Zealand dollar also climbed 0.2% to its strongest since Thursday at $.6650 and the euro was steady at $1.1128.

The Japanese yen weakened 0.1% to 109.60 per dollar, close to a seven-month low, and it slid 0.6% to an 8-month low against the trade-sensitive Korean won. A holiday in Japan reduced overall trading volumes.


Elsewhere, the British pound fell 0.3% to $1.3037 and flirted with a two-week low after dovish comments from Bank of England policymaker Gertjan Vlieghe over the weekend.

Vlieghe told 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.

“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.”

Elsewhere in the markets, the Taiwan dollar rose to its strongest in more than 18 months after the re-election of President Tsai Ing-wen at the weekend removed some uncertainty.

Reporting by Tom Westbrook; editing by Jane Wardell & Simon Cameron-Moore

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