On Monday the US dollar held a near two and half month high against the Japanese yen. This was after the US and China announced that the trade talks were progressing well. The sterling pound, on the other hand, held near its three months high in anticipation of an orderly Brexit from the EU.
USD strong against the dollar
The USD strengthened against the yen on Friday at 108.63 yen which is the highest it has been since the beginning of August. This was before Washington and Beijing reached the first phase of their trade deal negotiation. It cut the gains after President Trump announced part of the details of the agreement covering intellectual property protections, agriculture, and currency. Trump did not provide details of the agreement which has left investors more cautious.
In early Asian trading on Monday the USD dropped to 108.36 yen versus the yen with the euro standing at $1.1025 against Friday’s gains. Trading volumes in Tokyo will likely be lighter than normal on Monday because of a public holiday.
National Australia Bank head of FX strategy, Ray Attrill indicated that the trade is symbolic than significant. He added that this is just a temporary trade war cease-fire. Attrill indicated that even if the first phase agreement is signed it will do less in brightening the current global trade outlook and growth. It will not prevent the Federal Reserve from cutting rates on October 30. He added that the agreement doesn’t offer a strong pretext for sustained or significant USD depreciation.
Beijing wants more talks to finalize details to the Phase 1 agreement
Alex Stanely, National Australia Bank’s senior interest rate strategist indicated that there are reports that Beijing may want another meeting before the end of the month to finalize the agreement. This is an indication that they have not nailed the final details of the deal. Stanley indicated that market participants are currently cautious because the talks have broken down before following disagreements between the parties. Beijing wants more talks before the can agree on details of the phase 1 agreement and then President Jinping signs it.
The sterling soared on Friday to around $1.2708 as Britain anticipates an orderly Brexit. The EU had agreed last week that they will hold discussions with London as they try to reach a breakthrough. They expect to secure a Brexit deal before the deadline at the end of this month.
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