Dollar falls as rally fades, China’s yuan steady

The U.S. dollar edged lower against a basket of currencies on Wednesday as its recent rally on global trade tensions showed signs of fading, while the offshore yuan steadied near a one-week high.

In a reminder of the growing trade disputes, the U.S. Trade Representative’s office said late on Tuesday that the United States would begin collecting 25 percent tariffs on another $16 billion of goods it imports from China later this month.

The move is the latest by Washington to pressure China into negotiating trade concessions after it imposed tariffs on $34 billion of goods in July. China has vowed to retaliate to an equal degree.

On Wednesday, the dollar fell 0.15 percent against a basket of six currencies and was at 95.065 at 0330 GMT. It fell as low as 94.994 overnight.

“Market reaction to the headlines about the U.S.-China trade war is waning,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“If there are clear signs of a slowdown of the U.S. economy due to the tariffs imposed in July, then I think the market will begin to price in slower rate hikes or no rate hikes by the Federal Reserve.”

Since mid-April, the dollar index has risen more than 6 percent, supported by rising interest rates and fears over the impact of trade conflicts.

On Wednesday, China’s offshore yuan traded at 6.8262 yuan per dollar, paring some gains after hitting a one-week high of 6.8063 earlier in the day.

The Australian dollar, often seen as a proxy for China’s economic growth because of Australia’s heavy reliance on exports to the country, gained 0.1 percent to $0.7431.

But it showed a muted response to China’s July trade data, the first figures since the United States imposed tariffs on $34 billion of Chinese imports on July 6. The report showed China’s exports and imports rising faster than expected, although the country’s trade surplus with the United States was little changed.

Elsewhere, the yen stood little changed at 111.38 per dollar. The euro rose almost 0.2 percent to $1.16185.

The United States and Japan are scheduled to hold their first bilateral trade talks in Washington on Thursday after Trump and Japanese Prime Minister Shinzo Abe agreed in April to a new framework to discuss “free, fair and reciprocal” trade.

“If the U.S. criticizes Japan’s macro-economic or foreign currency policy, it’s likely to lead to a stronger yen,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

“But it’s quite unlikely that will happen because these talks are the first bilateral trade negotiations as part of the new framework between the U.S. and Japan.”

Source: Reuters