Dollar slips after rally, focus shifts to US-China trade talks

New Straits Times

4 hours ago

WASHINGTON: The dollar eased against all major currencies on Monday, as exuberance over a better than feared US employment report gave way to caution ahead of pivotal US-China trade talks set to take place later in the day.
Top officials from both countries will meet in London to address disagreements around a preliminary agreement struck last month in Geneva, which had briefly cooled tensions between the world's largest economies.
The talks come at a crucial time for both sides, with China grappling with deflation and trade uncertainty dampening sentiment among US businesses and consumers, prompting investors to reassess the dollar's safe-haven status.
"How the trade talks go definitely is going to be critical for overall sentiment," said Kit Juckes, chief FX strategist at Societe Generale.
He said Asia Pacific currencies including the Japanese yen and Australian and New Zealand dollars would likely see the biggest reaction to headlines from the talks.
The dollar declined 0.46 per cent against the Japanese currency , trading at 144.16 yen after two consecutive weeks of gains.
Japan is considering buying back some super-long government bonds issued in the past at low interest rates, two sources with direct knowledge of the plan said on Monday, underscoring its focus on reining in any abrupt rises in bond yields.
The euro rose 0.2 per cent and was last at US$1.1418 as markets continued to price in the European Central Bank's monetary policy outlook issued last week, in which it indicated it may be close to ending its easing cycle, while sterling rose 0.3 per cent to US$1.3558.
Elsewhere, China's offshore yuan was last at 7.18 per dollar after data showed export growth slowed to a three-month low in May, while factory-gate deflation deepened to its worst level in two years.
New Zealand's dollar rose 0.6 per cent to US$0.60555, while the Australian dollar was last up by half a percentage point at US$0.6524 in light volumes as markets were closed for a public holiday.
In Australia, a much healthier fiscal position than the US, attractive yields and a "not too bad" economy should support the Aussie unless there are negative headlines from the talks, Juckes said.
Also on the trade front was a report that said Japan's chief trade negotiator Ryosei Akazawa is planning a sixth round of talks in Washington.
An inflation report out of the US for the month of May will be in the spotlight later in the week as investors and Federal Reserve policymakers look for evidence on the damage trade restrictive policies have had on the economy.
Fed officials have signalled that they are in no rush to cut interest rates and signs of better-than-feared economic resilience are likely to further cement their stance.
Interest rate futures indicate that investors are anticipating the central bank may cut borrowing costs by 25 basis points, with the earliest move expected in October this year, according to data compiled by LSEG.
"May is the first month where the impact of Trump's 10 per cent universal tariff on imports ex-USMCA (United States-Mexico-Canada Agreement) is expected to show.