Dollar weakens as US, China sign trade deal

U.S. dollar bank notes are arranged for a photograph on September 7, 2017 in Hong Kong.
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The dollar pared losses but remained lower against the euro and the yen on Wednesday after the United States and China signed a deal to de-escalate their trade war.

The two countries announced an initial trade deal on Wednesday that will roll back some tariffs and boost Chinese purchases of U.S. goods and services, defusing an 18-month conflict between the world's two largest economies. But the deal will leave in place 25% tariffs on a vast, $250 billion array of Chinese industrial goods and components used by U.S. manufacturers.

There is "not much of a reaction at all to the trade deal signing," said Shaun Osborne, chief fx strategist at Scotiabank in Toronto. It may be a mild negative going forward for the greenback, however.

"The dollar has done relatively well out of the uncertainty element that this protracted trade war has caused," Osborne said. "So, at the margin we think its a dollar negative."

The euro was last up 0.22% against the greenback at$1.1151. The dollar dropped 0.05% against the yen to 109.91, after the Japanese currency on Tuesday hit its weakest level since May at 110.20.

Sterling edged higher, reversing earlier losses after data showed UK inflation rose at its slowest in three years, feeding expectations the Bank of England would cut rates in January.

Directionally the market expected some weakness, but probably the magnitude surprised, said Vassili Serebriakov, an fx strategist at UBS in New York.

The Swiss franc gained to its strongest against the dollar in over a year, and its highest against the euro in almost three years, after the United States on Monday added Switzerland to its watchlist of currency manipulators. Analysts said the inclusion could discourage the Swiss National Bank (SNB) from intervening to try to limit further appreciation of the franc, although the Swiss finance ministry said it would have no immediate consequences.

The Russian rouble weakened after the resignation of Prime Minister Dmitry Medvedev's government.