The dollar advanced against the yen on Monday, after U.S. Treasury Secretary Steven Mnuchin said the U.S. trade war with China is “on hold”, boosting risk sentiment amid hopes for an easing of trade tensions between the world’s two biggest economies.
The dollar rose 0.5 percent to 111.245 yen, hitting a fresh four-month high in Asian trade.
The easing of U.S.-China trade tensions is likely to underpin riskier assets such as equities and bodes well for the dollar against the safe-haven yen, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.
“I think equity markets are going to be in a happier place today,” Innes said.
Japan’s Nikkei share average climbed to 3-1/2-months high, as the weaker yen helped Japanese exporters.
Japan is the world’s largest creditor nation and traders tend to assume Japanese investors would repatriate funds at times of crisis, thus pushing up the yen. The Japanese currency often weakens when investor confidence increases and their appetite for riskier assets strengthens.
“Because many dollar/yen sell orders from Japanese exporters have already been cleared at 106-109 levels, I think the dollar could rise to 113 yen soon, without facing much resistance,” said Yunosuke Ikeda, chief forex strategist at Nomura Securities in Tokyo.
If U.S. 10-year Treasury yields were to climb above the seven-year high of 3.128 percent set on Friday and the dollar gains a solid foothold above 111 yen, the greenback could attempt for the 112-yen levels, Oanda’s Innes also said.
In equity markets, U.S. S&P mini futures rose 0.6 percent in Asian trade, after Mnuchin said on Sunday that the U.S. trade war with China is “on hold” after the world’s largest economies agreed to drop their tariff threats while they work on a wider trade agreement.
Mnuchin and U.S. President Donald Trump’s top economic adviser, Larry Kudlow, said the agreement reached by Chinese and American negotiators on Saturday sets up a framework for addressing trade imbalances in the future.
The dollar’s index against a basket of six major currencies set a fresh five-month high on Monday, touching a peak of 93.860 at one point.
The euro slipped to $1.1744 at one point, touching its lowest level in five months, and was last down 0.2 percent on the day at $1.1746.
Europe’s single currency has dropped around seven cents in about a month amid a sharp dollar rally.
Concerns have also mounted about the agreement between Italy’s far-right League and 5-Star Movement on a governing accord that would slash taxes and ramp up welfare spending.
The British pound shed 0.35 percent to $1.3857, hitting its lowest level since late December.
A focus for markets this week is Wednesday’s release of minutes from the Federal Reserve’s latest monetary policy meeting. Investors will be watching the minutes for clues about the pace of the current tightening cycle.