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US Dollar Rises As Investors See Progress in China Trade Talks

October 11, 2019 at 11:08 by Andrew Moran

Some USD bills and US cent coinsThe US dollar is rising at the end of the trading week, driven by investors witnessing progress in the latest principal-level US-China trade negotiations. Markets do not expect that a comprehensive trade agreement, but investors think that both sides are open to a mini-deal that would pause the trade war. This would provide markets with some relief and certainty entering into 2020.

On Friday, President Donald Trump will meet with Chinese Vice Premier Liu He in Washington at 18:45 GMT. Speaking to reporters prior to his big Minneapolis rally, Trump said that the 13th round of negotiations with China is going well.

I think it’s going really well. We had a very, very good negotiation with China. They’ll be speaking a little later. They’re basically wrapping it up and we’re going to see them tomorrow right here and it’s going very well.

Myron Brilliant, the head of international affairs at the US Chamber of Commerce, echoed this sentiment. He said he met with Liu and other business executives for more than an hour and “we’re making progress.”

Early reports indicate that the White House would be open to easing restrictions on Chinese telecommunications giant Huawei. Beijing, meanwhile, would purchase more US agriculture and open up domestic markets to foreign players. China has been showing signs of good faith, buying 2.09 million metric tons of soybeans, 130,000 metric tons of wheat, and 142,000 tonnes of pork during the week of September 27 to October 3.

It is unclear if the two sides have broached the subjects of industrial policy and state subsidies, issues that Chinese officials say would be off the table.

But while these developments created excitement, futures markets slumped on reports that the Chinese trade delegation would cut its trip short.

At the very least, businesses are hoping that the trade talks will slow down the escalation in tariffs and tackle more challenging issues, like intellectual property and data transfer restrictions. Right now, the next set of tariff hikes on Chinese imports is scheduled for October 15, and nearly all goods traded between the world’s two largest economies will be subjected to tariffs.

On the data front, the 12-month inflation rate was unchanged at 1.7% in September, while the Year-on-Year core inflation rate was flat at 2.4%. Also, initial jobless claims fell to 210,000 in the week ending October 5. September import and export prices will be released later on Friday as they are expected to remain unchanged.

Minneapolis Federal Reserve Bank President Neel Kashkari spoke to Yahoo! Finance and revealed that he thinks the recession risks are growing but he ultimately believes the expansion will continue. On one hand, business investment is sliding, the labor market is slowing, and the yield curve inversion happened. But consumers are still employed and finding work and they are spending.

My base case scenario is not a recession. I still think the US economy is going to grow, but the risks have materially increased to the downside

The US Dollar Index plunged 0.27% to 98.43, from an opening of 98.70, at 11:00 GMT on Friday.

The USD/CAD currency pair slipped 0.11% to 1.3274, from an opening of 1.3292. The EUR/USD surged 0.27% to 1.1035, from an opening of 1.1006. The GBP/USD soared 0.98% to 1.2566, from an opening of 1.2448.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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