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US dollar holds gains after US-China trade talks, focus shifts to Fed

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The US dollar held onto recent gains in early trade on Friday after US and Chinese officials ended two days of trade talks without any major breakthroughs.

[TOKYO] The US dollar held onto recent gains in early trade on Friday after US and Chinese officials ended two days of trade talks without any major breakthroughs.

The talks between the two nations ended as their trade war escalated on Thursday after a new round of US tariffs kicked in on US$16 billion worth of imports from China, followed immediately by reciprocal tariffs from China.

As a safe haven currency, the US dollar has benefited from fears of international trade turmoil in recent months.

Investor focus turned to the speech by Federal Reserve Chairman Jerome Powell to be held later on Friday at an annual meeting of central bankers at Jackson Hole, Wyoming.

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Market voices on:

"I think Powell may imply that regardless of political pressure the Fed may continue with rate hikes as long as the US economy keeps expanding," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

"If the market can confirm that, then I think the dollar's strength will continue, especially against the yen, and dollar/yen will head for 112 or the July high of around 113."

The dollar index, which measures the greenback's performance against six major currencies, was basically flat on Friday, trading at 95.656. It rose more than half a per cent, snapping a losing streak that started last week.

The yen was down about 0.1 per cent at 111.39 yen. On Thursday, the US dollar had gained nearly 0.7 per cent against the Japanese currency after the Fed's minutes showed officials discussed raising rates soon.

The minutes also showed that officials had examined how global trade disputes could affect businesses and households.

The euro edged higher to about US$1.154, recouping some losses after shedding more than half a per cent during the previous session.

The Australian dollar was down about 0.1 per cent. It gave up nearly 1.4 per cent on Thursday amid political troubles for Prime Minister Malcolm Turnbull.

Mr Turnbull has clung to power after coming under pressure to call a second leadership vote following the resignations of several prominent Cabinet figures.

"The Australian dollar is much affected by domestic political uncertainty, but I think it's overdone. The Australian economy is okay regardless of who is prime minister," said Mr Yamamoto.

"This excess weakness of the Australian dollar is a good opportunity for investors to buy on the dips," he said.

The pound remained on the defensive on Friday as the British government told companies trading with the European Union they would face a tangle of red tape in case of a "hard Brexit".

Early on Friday, sterling lost about 0.1 per cent to US$1.2800 adding to the previous day's pains when it had slumped more than 0.7 per cent.

REUTERS