Yuan hits 3-week high on trade deal optimism

London

THE US dollar paused on Wednesday as traders positioned ahead of the release of monetary policy minutes, while China's yuan rose after the United States pressed Beijing to prevent a sharp weakening of its currency as part of any trade deal.

The euro/dollar exchange rate, stuck within recent ranges, traded quietly as investors waited for cues on where US monetary policy is headed after the Fed's recent dovish tilt.

The euro, which has struggled this month as worries grew about the state of the euro zone economy, slipped 0.1 per cent to US$1.1334.

ABN AMRO analyst Georgette Boele said the bank had downgraded its euro forecasts for 2019 because of economic concerns.

The dollar, measured against a basket of currencies, edged higher to 96.591, below a two-month high hit last week. Demand for the greenback has ebbed on optimism that a fresh round of talks between China and the US would help resolve their trade conflict.

The benchmark 10-year US Treasury yield fell sharply to an 11-day low on Tuesday ahead of the Fed meeting minutes, which are due later on Wednesday, further dampening demand for the dollar. The minutes from the January Fed meeting will be closely watched following a dovish statement at that review.

Analysts say weaker than expected US retail sales and industrial production numbers published this month have also dented the near-term outlook for the dollar.

According to MUFG, the data "challenged the view that the US economy will continue to hold up relatively well while overseas economies are displaying more acute weakness".

The yuan, a strong performer in 2019, firmed to a three-week high on optimism that Washington and Beijing are close to agreeing a deal to end their trade conflict.

In offshore markets, the yuan rose 0.4 per cent to as much as 6.7168, its strongest since Feb 1.

The yen fell another 0.3 per cent against the dollar to 110.95 after disappointing trade numbers showed Japanese exports fell the most in two years in January.

The yen had taken a hit on Tuesday after Bank of Japan Governor Haruhiko Kuroda said the central bank was ready to ramp up stimulus measures if sharp yen rises hurt the economy.

Sterling slipped 0.3 per cent but held above US$1.30 following Tuesday's surge on hopes that Prime Minister Theresa May can make progress in Brussels on Wednesday as she tries to tweak her Brexit withdrawal agreement. REUTERS