Euro rebounds from 13-month lows, dollar weakens on U.S.-China talks

LONDON - 16 August 2018: The euro recovered on Thursday from its weakest since June 2017 and the dollar fell after news that a Chinese delegation will travel to the United States for trade talks, with investors buying back into currencies hit hard in the recent sell-off.

Many emerging market currencies also rose, clawing back some of Wednesday’s losses thanks to easing fears over the knock-on effects from a slide in the Turkish lira.

Global equity markets remained under pressure on Thursday, however, underlining how nervous investors remain.

“That China and the U.S. are beginning to talk again is supporting the market,” said Commerzbank currencies strategist Thu Lan Nguyen. “As the (Turkish) lira did not depreciate further, that has taken out some tension from the market.”

She also emphasised that the currency crisis in Turkey is far from over because authorities have yet to tackle the root causes.

More important for major currencies on Thursday were developments in the months-long trade conflict between the United States and China.

China’s Ministry of Commerce said on Thursday that it had received an invitation from the United States for talks to be held with U.S. Under Secretary of Treasury for International Affairs David Malpass.

The news that the world’s two biggest economic powers were showing a willingness to negotiate boosted investor sentiment after a worrying week.

The euro rose 0.3 percent to $1.1373, away from Wednesday’s lows of $1.1301.

The dollar, which has gained on bouts of investors jitters as traders seek safety in the higher-yielding and most liquid currency, fell on Thursday after a recent strong run. The dollar index slipped 0.2 percent to 96.554.

China’s offshore yuan, which has been rough barometer of risk sentiment and fallen in recent months on concerns about the impact on its economy of the trade conflict with the United States, gained 0.8 percent to 6.8945.

Among emerging market currencies that bounced were the South African rand, with a 0.6 percent gain after sliding more than 2 percent overnight, while the Mexican peso and Russian rouble also rose.

“Trade war fears had morphed into an opportunity for speculators, who had been selling the yuan and other currencies against the dollar. The news that pointed to a possible easing of U.S.-China trade tensions appears to have curbed such activity,” said Daiwa Securities’ chief FX strategist Mitsuo Imaizumi.

“But there is no guarantee that the trade discussions will end successfully. As such, the trade news may have stopped the speculators’ selling, but perhaps only for the time being.”

The yen, another perceived safe haven, paused after its bullish spell, with the dollar trading flat at 110.75 yen.

The Norwegian crown gained nearly 1 percent ahead of a central bank policy decision at 0800 GMT.

The Australian dollar, seen as a proxy for China-related trades, climbed 0.3 percent to $0.7262 after falling to $0.7202 on Wednesday, its weakest since January 2017.