Monday, 9 April 2018

Dollar steadies but U.S.-China trade tensions cloud outlook

SINGAPORE (Reuters) - The dollar steadied on Monday, having retreated late last week due to concerns over U.S.-China trade tensions and following data that showed the U.S. economy created the fewest jobs in six months in March.

The dollar index against a basket of six major currencies inched up 0.1 percent to 90.189 after a drop of 0.4 percent on Friday.

The dollar index had set a one-month high of 90.597 ahead of the U.S. nonfarm payrolls report data on Friday but later lost some steam, weighed down by concerns about the U.S.-China trade dispute and the disappointing U.S. jobs data.

China warned on Friday it was fully prepared to respond with a “fierce counter strike” of fresh trade measures if the United States follows through on President Donald Trump’s threat to slap tariffs on an additional $100 billion of Chinese goods.

Increasingly combative statements from Washington and Beijing have stirred fears of a full-blown trade war that could hurt global economic growth, though investors are holding out hope that negotiations will result in a far less damaging compromise.

Risk aversion appears less intense than it did a few weeks ago, partly due to hopes for negotiations between the United States and China towards a pragmatic solution, said Shinichiro Kadota, senior strategist for Barclays in Tokyo.

“We’re no longer in a phase where the dollar keeps falling persistently against the yen,” Kadota said.

“But at the same time, the (dollar’s) upside will likely be heavy, given the concerns over a trade war, as well as range-bound moves in U.S. yields and the end of one-way rises in U.S. equities,” Kadota added.

Against the yen, the dollar rose 0.1 percent to 107.00 yen, after shedding 0.4 percent on Friday to pull away from a five-week high of 107.49 yen set on Thursday.

That rise to Thursday’s peak marked a gain of 2.8 percent for the dollar against the yen, compared with a 16-month low of 104.56 yen set on March 26.

Markets showed limited reaction after Syrian state TV said there were casualties in what it reported was a suspected U.S. missile attack on a major air base in central Syria. The United States, however, denied it had launched any air strikes against the country.

Although geopolitical risks are a concern, they are being offset by solid global economic growth, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

“If economic conditions start to dim, that’s when the market might start reacting excessively to these types of things,” Okagawa said, referring to geopolitical tensions.

Equities, however, have some resilience now given that U.S. corporate earnings have been solid recently, he added.

U.S. equities will meet a major test in coming weeks as first-quarter earnings pour in, with expectations that tax cuts will help Corporate America show its biggest quarterly profit growth in seven years.

The euro slipped 0.1 percent to $1.2272, but traded above a one-month low of $1.2215 set before last week’s U.S. jobs data.

Friday’s U.S. nonfarm payrolls report showed an increase of just 103,000 jobs in March, the smallest gain since last

September. Average hourly earnings rose 0.3 percent, which pushed the annual wage growth rate higher.

Reference: Masayuki Kitano

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