Euro gains as dollar rally fades; yen rebounds

LONDON - 8 August 2018: The euro rose above $1.16 on Wednesday as the dollar’s recent rally ran out of steam, and traders said solid data out of China had calmed investor nerves about recent Sino-U.S. trade tensions, hurting demand for the dollar.

The dollar has weakened since hitting a three-week high on Monday, when the prospect of a full-blown trade war increased demand for the U.S. currency. Traders said the dollar needed a fresh impetus or an escalation in trade tensions to justify a move higher.

“The Chinese trade data, coupled with the PBOC moves, is helping quieten markets, with range-bound trading,” said Valentin Marinov, head of G10 FX strategy at Credit Agricole. “The main driver for markets at the moment is dollar buying and selling.”

Marinov was referring to the People’s Bank of China’s imposing a reserve requirement on forex forwards to help stabilize the plummeting yuan.

The Chinese currency has since recovered some of its losses and traded up 0.1 percent at 6.8201 CNH=EBS in offshore markets on Wednesday, away from 6.9125 lows hit last week.

The euro rose 0.2 percent to $1.1618 EUR=EBS, up from Monday's low of $1.1530.

The dollar index fell 0.2 percent to 95.036 .DXY.

China’s July trade data, the first since the United States imposed tariffs on $34 billion of Chinese imports on July 6, showed China’s exports and imports rose faster than expected, although the country’s trade surplus with the United States was little changed.

In a reminder of the growing trade disputes, however, the U.S. Trade Representative’s office said late on Tuesday that the United States would begin collecting 25 percent tariffs on another $16 billion of goods it imports from China later this month.

The move is the latest by Washington to pressure China into negotiating trade concessions. China has vowed to retaliate to an equal degree.

“Market reaction to the headlines about the U.S.-China trade war is waning,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“If there are clear signs of a slowdown of the U.S. economy due to the tariffs imposed in July, then I think the market will begin to price in slower rate hikes or no rate hikes by the Federal Reserve.”

YEN GETS BOJ BOOST

The yen rose half a percent against the dollar after reports that Bank of Japan board members disagreed last week on how far interest rates should be allowed to move from the central bank's target. The yen rose to 110.84, a one week high JPY=.

The Australian dollar, seen as a proxy for China risk because of its reliance on Chinese demand for its exports, rose 0.1 percent to $0.7427 AUD=D3.

Britain's pound fell 0.1 percent GBP=D3 against the dollar. It also slipped versus the euro to a nine-month low of 89.84 pence EURGBP=D3 as Brexit worries weighed.