Dollar keeps gains before new US move on China tariffs

The dollar held above a recent 1-1/2 month trough against a basket of major currencies on Monday as investors awaited details on a new round of U.S. tariffs against China, which could further sour relations between the two giants.

U.S. President Donald Trump is likely to announce new levies on China later in the day. The tariff level will probably be about 10 percent, the Wall Street Journal reported, below the 25 percent the administration had said it was considering.

The WSJ also reported that China may decline to attend trade talks due next week as Beijing won’t negotiate “with a gun pointed to its head”.

Currency moves were minor as investors awaited details while liquidity was thin with Japan’s financial markets closed for a holiday.

The dollar index against a basket of major currencies held at 94.911, well above Friday’s 94.359, which was the lowest since end-July.

Against the yen, the dollar was last at 111.98 yen after climbing to 112.16 on Friday which was the highest since mid-July.

Johanna Chua, Citi economist for Asian emerging markets, said in a note that it could prove “very negative” if new U.S.-China trade talks do not take place as these are “imperative to diffusion of trade tensions”.

Analysts at JPMorgan said that new U.S. tariffs could mean China escalates the dispute with “outright export restrictions” which would “only inflame the situation further”.

The dollar traded higher against the yuan despite a lower daily fix by the Chinese central bank. The dollar was last at 6.87 from Friday’s close of 6.86.

Nick Twidale, Sydney-based analyst at Rakuten Securities, said 6.9000 yuan to the dollar was “still looking like a crucial level on the topside”

“Clarification that the Chinese are turning down the recent invitation to talks with the U.S. should see further haven flows to the greenback against the majors”, he said in a note.

Investors continue to be bullish on the greenback with net long positions of $19.2 billion, according to calculations by Reuters and Commodity Futures Trading Commission (CFTC) data released on Friday.

The CFTC report also showed the major positioning changes were in the euro, with net longs increasing. Net shorts in sterling and the Swiss franc also declined.

The euro and sterling each rallied last week on encouraging developments on terms for Britain’s exit from the European Union, paring some safe-haven demand for the dollar.

The euro was last at $1.1633, down from a three-week top of $1.1721 set on Friday. The pound also retreated, easing from last week’s peak of $1.3145 to trade at $1.3076.

The first of three Brexit summits are set for the coming week, where EU leaders hope to settle an agreement within the next two months over the terms of Britain’s departure.

Investors will watch for European inflation data later in the day and a speech by European Central Bank President Mario Draghi on Tuesday.

Source: Reuters