Markets reveal cautious optimism about trade talks

Chris Lee

The global foreign exchange trading markets revealed a dose of cautious optimism about trade talks on Friday.

The talks, which are taking place in Washington between senior financial figures from both the US and Chinese governments, looked set to proceed smoothly.

There was even hope that there may be a trading breakthrough ahead of the imposition of higher tariff rates next week.

US President Donald Trump is intending to raise tariffs by 5% on Tuesday, although talk earlier this week of a currency pact and some potential breakthroughs on the trading front appeared to reduce the risks of that happening.

Several currencies in the Asia-Pacific region responded well to this news.

The Australian dollar went up by a fifth of a percentage point due to the positive developments: this currency is largely linked to the fortunes of the Chinese yuan, which also rose.

The offshore yuan saw its highest point in three weeks over the course of the day.

It was seen at 7.0890 per dollar.

In other examples of global hope boosts on Friday, talks between the Irish Taoiseach Leo Varadkar and British Prime Minister Boris Johnson in the UK appeared to go well.

The two countries have been locked in a long-running war of words in recent months over worries about the progress of Brexit – and about whether or not the proposed Irish backstop would work in practice.

The sides now appear to have made some progress, with Varadkar hinting on Thursday that there could be a deal agreed by the end of October.

This caused the pound to go up in its pair with the US dollar.

It reached $1.2455 at one stage, which was only a slight rise – although it was coming from an improved position of 2% higher over the course of the evening.

This 2% rise represented its best day on day performance for over half a year.

In its pair with the single European currency, however, it was seen to stagnate.

It was noted at 88.445 pence at one stage.

However, analysts are not entirely hopeful.

One analyst quoted by Reuters argued that there was still a risk of a deal not transpiring purely because the British parliament might reject it – even if Ireland approves it.

Smaller European currencies were also up over the course of the day, including the Norwegian crown.

This was seen as largely a consequence of the changing global trade scene, and a growing expectation that China and the US may be able to work out their differences.

It rose by 0.2% over the course of the day to meet 10.0280 against the single European currency.

Over the border in Sweden, the crown there was seen to rise to its best point in almost all of this working week.

It was recorded at 10.8180 in its pair with the euro at one point.

Whether or not these signs of strength will be able to be sustained as time goes on however, remains to be seen.

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Chris Lee
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