Euro edges higher, yuan gains as trade concerns linger

LONDON - 4 July 2018: The euro rose against the dollar on Wednesday but the move was limited as concerns ahead Washington’s end-of-week deadline to impose tariffs on Chinese imports kept many investors on the sidelines.

The yuan was the big mover, gaining 0.8 percent as the Chinese currency continued its recovery from an 11-month low after the central bank took steps to stem its rapid slide.

Currency moves were largely limited, however, with a public U.S. holiday in the United States discouraging traders from taking out big positions, not least until there is some clarity about where an escalating trade dispute between the U.S. and China is headed and whether Europe will be dragged in.

“Markets are still in a wait and see mode and risk sentiment is subdued,” said Thu Lan Nguyen, a currencies analyst at Commerzbank in Frankfurt.

“Both the euro and the dollar benefit because both are seen as safe havens. The euro/dollar is misleading and it looks like nothing is happening,” she said, adding that the market needed to see data on whether the trade dispute was so far having an impact on the real economy.

The euro rose 0.1 percent to $1.1665. Euro zone business survey data is due at 0800 GMT.

The dollar fell 0.2 percent against a basket of six major currencies at 94.505 ahead of the U.S. Independence Day holiday, after notching up three consecutive months of gains.

Both the yuan and Chinese equity markets have been on edge ahead of July 6, when U.S. tariffs on $34 billion worth of Chinese goods take effect. Beijing has said it will retaliate with tariffs on U.S. products.

Asian stocks slipped on Wednesday and European markets also opened lower, underlying investor nervousness. The yen gained 0.2 percent versus the dollar to 110.39, supported by its safe haven status.

The offshore yuan last traded at 6.6168 against the dollar, up 0.8 percent on the day. The yuan had rebounded sharply on Tuesday after reassuring remarks from Yi Gang, Governor of the People’s Bank of China (PBOC).

Governor Yi said in a statement on the PBOC website that the central bank was closely watching foreign exchange fluctuations and would seek to keep the yuan at a stable and reasonable level. Cross-border capital flows were under control, he noted.

FED MINUTES

Dollar trading is also expected to be range-bound as investors await the publication on Thursday of minutes from the Federal Reserve’s June meeting, and Friday’s U.S. jobs data.

Valuations remain supportive of the dollar, with its trade-weighted basket still below long-term averages and the market pricing in two more interest rate hikes for 2018.

Elsewhere the Australian dollar took heart from solid domestic retail sales data and edged up to $0.7403, moving away from an 18-month trough around $0.7311.

The Mexican peso rose sharply on Tuesday after Andres Manuel Lopez Obrador, the newly elected president, sought to soothe investors - magnifying a global bounce in emerging market assets.

The peso firmed as much as 2.6 percent overnight, by far the biggest gainer among Latin American currencies.

“We think the latest developments go in line with our view that Lopez Obrador will be more pragmatic than some domestic market participants expect,” said Tania Escobedo, New York-based Latam FX Strategist at RBC Capital Markets, adding there was space “for a rally” in the peso.