Dollar ticks lower as China remains cautious on U.S.-China trade deal

By: Andia Rispah
Andia Rispah
Andia Rispah is a Personal Finance & Investment Writer who helps Financial Advisors to create valuable content to help… read more.
on Dec 17, 2019
  • FX Market was on hold with the USD slightly lower, anticipating further details on the US-China trade agreement.
  • Phase one trade deal is expected to almost double U.S. exports to China over the next two years.
  • The trade-sensitive Chinese yuan and Australian dollar were both off last week's four-month peaks.

On Monday morning, the FX Market was on hold with the USD slightly lower, anticipating further details on the US-China trade agreement.

Phase one trade deal is expected to almost double U.S. exports to China over the next two years. China has remained cautious ahead of the signing of the agreement.

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Lighthizer said there would be some routine “scrubs” to the text, but it was totally done.

The two sides announced the deal after they agreed to reduce U.S. tariffs on Chinese goods in exchange for increased Chinese purchases of the U.S. agricultural, manufactured, and energy products over the next two years.

However, although the Chinese trade delegation expressed optimism about the deal, some government officials were cautious. 

The deal is a phased achievement, and does not mean the trade dispute is settled once and for all,” a Reuters source said.

Caution over the future path of trade talks pushed the dollar index .DXY down 0.23%, last at 96.948. 

Trade sensitive currencies

The trade-sensitive Chinese yuan and Australian dollar were both off last week’s four-month peaks.

F.X. investors took one look at the semi-conclusion of a “phase one” deal on Dec. 12 and were overjoyed, but came back to the table on Dec. 13 with the feeling of having more questions than real answers,” said Stephen Gallo.

Stephen Gallo is the European head of foreign exchange strategy at BMO Capital Markets.

The euro, which had spiked to a four-month high of $1.1199 against the dollar on Friday, retraced most of those gains last at $1.1152.

Nevertheless, it went up modestly throughout Monday’s trade. 

The yen, a safe-haven asset that benefits from market uncertainty, reached a two-week low on Friday before regaining some value to last trade at 109.50 yen per dollar.

The “U.S.-China phase one deal offers more in terms of negating some near-term downside risks facing the economy than it offers for a sharp rebound in domestic or global activity,” said Gallo.

Importantly, our prior expectations for faster growth rates in infrastructure investment do not seem to be coming to fruition yet.

Elsewhere, GBP remained bolstered by expectations that last week’s resounding election win for Conservative Party will end near-term Brexit uncertainty. 

The pound last traded at $1.335 GBP=, 0.21% firmer on the day.

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