US dollar holds gains as hopes rise for trade truce

London

THE US dollar held on to gains made in its recovery from recent lows on Thursday on hopes that the United States and China will agree to a trade truce before a G-20 summit this weekend, although investor sentiment remained fragile.

The two countries have agreed to a tentative truce in their trade dispute, Hong Kong's South China Morning Post cited sources as saying, ahead of US President Donald Trump and Chinese President Xi Jinping's meeting on Saturday.

That supported buying of the US dollar, which had weakened in recent weeks on expectations the Federal Reserve would cut interest rates and buying of safe-haven currencies such as the Japanese yen by investors worried about the trade conflict.

A dollar index rose 0.1 per cent against a basket of currencies to 96.351 before steadying at 96.222.

The US dollar rose to as high as US$1.1347 earlier but was flat on the day at US$1.1367 by 1030 GMT.

Eurozone economic sentiment dropped to its lowest point in nearly three years in June, European Commission data showed, although the single currency was unmoved.

"Economic data has continued (and will continue) to take a back seat to G-20 headlines, though it's probably the case that an increase in (June) German CPI inflation was offset by weaker economic and business confidence surveys in terms of the general EUR impact this morning," said BMO Capital Markets' European Head of FX Strategy, Stephen Gallo.

The yen, which had jumped to five-month highs earlier this week, fell to 108.16 but later stabilised around 107.87. The Swiss franc was unchanged at 1.1117 francs per euro .

China's offshore yuan rose 0.1 per cent to 6.8802 yuan per dollar , helping the renminbi back towards a six-week high of 6.8370 yuan per US dollar touched last week.

The outcome of the G-20 summit will likely weigh on the policy plans of the Fed, which opened the door to possible rate cuts after last week's meeting as it tries to address any economic damage stemming from the trade conflict.

The Fed also faces pressure from Trump to lower rates at a time when the president has attacked European Central Bank plans to inject more stimulus and possibly ease policy.

"I do not see a good reason for risk-on in this environment, but perhaps that is my biased German perspective. It seems unlikely to me that in this environment EUR-USD would gather sufficient momentum to test the US$1.14 mark again before Osaka," Commerzbank analysts said in a research note sent to clients.

Elsewhere, sterling rose 0.2 per cent to US$1.2714 after Boris Johnson, the frontrunner to replace Theresa May as British prime minister, said that the chance of a no-deal Brexit was "a million-to-one". REUTERS