Muted reaction among currencies to US-China deal

London

MAJOR currencies mostly shrugged off on Thursday the signing of the Phase One trade deal between the United States and China, since most of the issues agreed upon had been expected and the threat of tariffs was not eliminated.

Euro/dollar, the most fluid currency pair, was last trading up 0.1 per cent at US$1.1161, after matching the one-week high of US$1.1164 it reached the day before. An index that tracks the US dollar against six other major currencies fell to an eight-day low of 97.134.

Beijing and Washington touted the Phase One deal, signed late on Wednesday at the White House, as a step forward in resolving their trade dispute. US Vice-President Mike Pence said Phase Two discussions had already begun.

Yet market enthusiasm was checked, because much of the agreement was priced in and it addressed few of the issues that led to the conflict in the first place.

Analysts said the agreement did not eliminate tariffs, was vague on enforcement, and made no real progress on host of problems. Some were also sceptical that purchase targets set out in the deal are realistic.

China pledged to buy at least an additional US$200 billion worth of US farm products and other goods and services over two years.

In return, the Phase One deal cancelled planned US tariffs on Chinese cellphones, toys and laptops and halved to 7.5 per cent the tariff on about US$120 billion worth of other goods.

But it left in place 25 per cent tariffs on US$250 billion worth of Chinese industrial goods and components used by US manufacturers and China's retaliatory tariffs on over US$100 billion of US goods.

"The deal relies heavily on China's goodwill and includes forced purchases of US goods and protection for intellectual property rights and forced technology transfers," said Sebastien Galy, strategist at Nordea Asset Management.

The Chinese yuan, the currency most sensitive to the trade dispute, was 0.1 per cent higher at 6.8826 per US dollar in the offshore market, not far from the six-month high of 6.8662 it reached on Tuesday.

The level of seven yuan to the US dollar has been a barometer for US-China tensions, so the yuan's holding below that level showed that investors remain more or less optimistic about the trade ties between the world's two biggest economies and its impact on global growth.

The safe-haven Japanese yen was weaker at 109.97 per dollar, while the Australian dollar held 0.3 per cent stronger after rising to a nine-day high at US$0.6928. Both currencies are a gauge of stress.

The British pound rose to a six-day high of US$1.3065 . Against the euro, it was trading at 85.46 pence, 0.1 per cent higher. REUTERS