Dollar Dips in Forex Markets as US and China Agree on Trade

Jacob Friedman
china and us flag

US President Donald Trump and Chinese leader Xi Jinping have agreed to a ceasefire on their ever-escalating tariff wars.

Trump’s previous announcement that the tariff rate on $200 billion of Chinese products would skyrocket from 10% to 25% has now been cancelled, while the two nations are expected to spend the next 90 days aiming to reach a more comprehensive agreement.

While the development may be good news for proponents and beneficiaries of free trade, it was bad news for the US dollar.

Given that the US dollar is often flocked to in times of trouble due to its nature as a relative “safe haven” currency, the news that trade barriers may come down a little has made investors less likely to feel the need to head to it.

As a result, the dollar index, which measures its value compared to six other international currencies, dropped by 0.22% and reached 97.06.

Against the Chinese offshore yuan, the dollar dropped twice that amount – heading down by 0.44% to 6.9187.

The major winners were other Asian currencies. The Australian dollar, which is often seen as related to the fortunes of China due to the deep trading connection between the two countries, rose by 0.6%.

Looking ahead, there’s a busy week coming up for those active in the foreign exchange markets.

Today (Monday) sees the Institute for Supply Management (ISM)’s Manufacturing Index released in the US at 3pm GMT. This data covers November and is expected to show a decline from 57.7 to 57.5.

The same Institute’s “Prices Paid” index, which assesses how businesses feel about future inflation risks, is due at the same time. This is also expected to show a drop, from 71.6 to 69.1.

Several central bankers are expected to make speeches today. Andrew G. Haldane, Chief Economist at the Bank of England, will speak at 5.30pm GMT. While Robert Kaplan, President and CEO of the Federal Reserve Bank of Dallas in the US, is due to speak at 6pm GMT.

On Tuesday, a speech from Bank of England governor Mark Carney is expected at 9.15am GMT.

Later in the day, data on Canadian labour productivity in the third quarter of the year is expected. It is forecast to show a drop from 0.7% to 0.4% quarter on quarter when it comes out at 1.30pm GMT.

On Wednesday, the President of European Central Bank Mario Draghi will speak at 8.30am GMT.

Retail sales information for Europe will follow at 10am GMT and is expected to show a rise from 0.8% to 1.8% year on year when it is released.

The day is likely to be dominated, however, by the Bank of Canada’s interest rate decision, which is expected at 3pm GMT. It is currently not yet forecast what change, if any, will be made to the current rate of 1.75%.

The day will be rounded off by the release of the Federal Reserve’s Beige Book, which discusses the state of the US economy, at 7pm GMT.

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