Currencies

Dollar rises against yen, Swiss franc on nearing US-China trade deal

Exchange rate weakness in the face of a strong US dollar is a bigger concern for Asia than inflation, according to the managing director of DBS Bank in Singapore.
Zhang Peng | LightRocket | Getty Images

The dollar climbed to more than a five-month peak against the safe-haven yen and a three-week high versus the Swiss franc on Thursday, bolstered by expectations the United States and China were inching closer to a trade deal.

The world's two largest economies have agreed to roll back tariffs on each others' goods as part of the first phase of a trade deal, officials from both countries said on Thursday, offering a new sign of progress despite the two sides' ongoing divisions over trade.

The Chinese commerce ministry, without laying out a timetable, said the two countries had agreed to cancel the tariffs in phases.

That pushed investors' risk appetite higher, lifting not only the greenback against the safe-haven yen and Swiss franc, but also commodity-linked currencies such as the Australian and Canadian dollars.

"Markets are in full risk-on mode. The rising likelihood of a trade deal between the U.S. and China is believed to be beneficial to the U.S. economy as it reduces the headwinds facing American companies," said Karl Schamotta, chief market strategist, at Cambridge Global Payments in Toronto.

"So what we're seeing is a wash-out of safe-haven positions - we have seen the Swiss franc and yen falling in response to this move back into higher-yielding assets," he added.

In afternoon trading, the dollar rose 0.3% against the yen to 109.33 yen, after earlier climbing to its highest level in more than five months at 109.48 yen.

The dollar also advanced to a three-week high against the Swiss franc and was last up 0.3% at 0.9956 franc.

Before Thursday's announcement on trade, hopes for a deal had been waning after a senior Trump administration official told Reuters on Wednesday a meeting to sign the agreement could be delayed until December and that a venue had not yet been agreed.

The Australian and New Zealand dollars - proxies for risk which had been weakening due to uncertainty surrounding the possible trade deal - also gained on the trade deal comments, with the Australian currency up 0.3% versus the dollar at U.S.$0.6910..

Against a basket of currencies, the dollar was 0.2% higher at 98.128 .

The euro was down 0.2% against the dollar at $1.1048 , having hit three-week lows earlier in the session.

The pound, meanwhile, fell to two-week lows against the dollar and was last down 0.3% at $1.2818 after two Bank of England officials unexpectedly voted to lower interest rates on Thursday to ward off an economic slowdown.

The BoE kept the bank rate steady at 0.75%, but other officials with the central bank, including Governor Mark Carney, said they would consider a cut if global and Brexit-related headwinds do not ease.

TD Securities said in a research note that from a slightly longer-term perspective, sterling is likely to remain rangebound against the dollar over the next few weeks, with investors focused on the UK general election on Dec. 12.