US dollar rises as traders await China talks outcome
The dollar gained on Tuesday, helped by comments from U.S. officials that trade negotiations between Beijing and Washington were going well, although there was no clear consensus of a deal as the talks continued for a second day.
U.S. Commerce Secretary Howard Lutnick repeated President Donald Trump's upbeat tone on the trade discussions with top Chinese economic officials, but provided no details.
Sterling, on the other hand, slid against the greenback as British jobs data pointed to a weaker labor market.
Officials from the world's two largest economies were meeting in London to try to defuse a dispute that has widened from tariffs to restrictions over rare earths.
Marc Chandler, chief market strategist at Bannockburn Forex in New York, said it was not only tariffs at stake in these negotiations but also export controls, and "that's going to be the basis for the quid pro quo."
Chandler said there are the makings of a deal: U.S. semiconductor chips for China's magnets and rare earths. But what should be noted, he said, is the asymmetry. "China can replace the chips that the U.S. exports easier than we can replace their magnets and processed earths."
Trump and his Chinese counterpart Xi Jinping spoke by phone last week at a crucial time for both economies as signs of strain emerged from the former's cascade of tariff orders since January.
"Should the talks actually produce a substantial deal, traders would deem that to be very good news, and risk-reducing," wrote Thierry Wizman, global FX and rates strategist at Macquarie in New York.
"But we would expect that the U.S. would rally, in keeping with the recent pattern of seeing the U.S. dollar act as a risk currency. However, we would also expect that rally to be short-lived."
In afternoon trading, the dollar was up 0.2% against the yen at 144.92 yen, having lost about 8.5% against the Japanese currency this year. The yen has been supported overall by safe-haven flows during the market tumult unleashed by Trump's tariffs.
The dollar index, which measures the U.S. currency against six others, edged higher to 99.087. It is down more than 8% this year as investors, worried about the impact of tariffs and trade tensions on the U.S. economy and growth, sold some U.S. assets and looked for alternatives.
The euro, on the other hand, was flat at $1.1420, while the Australian dollar, often seen as a proxy for risk sentiment, was also little changed at US$0.6519.
Investor focus this week will be on the U.S. consumer price index report for May due on Wednesday. The report could give insight into the impact of tariffs, with investors wary of any flare-ups in inflation ahead of the Federal Reserve's policy meeting next week.
The U.S. central bank is also expected to hold rates steady next week, with traders pricing in nearly two 25 basis-point cuts by the end of the year.
Source: Reuters
