US dollar and yuan stabilize after US-China trade agreement
Both the US dollar and the yuan stabilized on Wednesday after progress in the US-China trade talks in London, paving the way for calming the recent trade war.
The US and China reached a trade framework in London after two days of intensive negotiations, with representatives waiting for the final approval of Trump and Xi Jinping to move forward.
This progress comes after an important deal reached in mid May, which stopped the enforcement of most tariffs for 90 days.
Limited Movements for Global Currencies
The US dollar edged up 0.7% against the dollar following the news to $1.141, while the yen stabilized at 144.91.
The yuan was little changed as well at 7.1873.
Ongoing Concerns
Despite the deal, analysts caution that tariffs remain much higher than their levels last year, and remain a burden on the global economy.
Investors are clearly losing confidence in US assets, with the dollar losing over 8% of its value since the start of the year.
Focus on UK Spending Plans
Markets are focusing on the UK Government’s distribution of over 2 trillion pounds of government spending between 2026 and 2029.
The pound shed 0.1% to $1.3483.
Markets will analyse the new US inflation data released today to gauge the likelihood of future Fed rate cuts.
They’re also closely monitoring an auction of US 10-year treasury yields worth $39 billion to gauge investor interest in US debt.
Risky-linked assets lost ground today, with the Australian dollar down 0.25% to $0.6505, while the New Zealand dollar shed 0.33% to $0.6033.
Gold climbs before US inflation data
Gold prices rose in European trade on Wednesday on track for the second profit in three days as the dollar declined against major rivals.
The US and China reached a trade framework in London after two days of intensive negotiations, with representatives waiting for the final approval of Trump and Xi Jinping to move forward.
Now global markets await major US inflation data later today for May to gather more clues on potential Fed rate cuts in the second half of the year.
The Price
Gold prices rose 0.75% to $3348 an ounce, with a session-low at $3315.
On Tuesday, gold slipped 0.1%, resuming losses and approaching a week low at $3293.
US Dollar
The US dollar index fell 0.1% on Wednesday against a basket of major rivals, providing more support to gold futures.
Trade Agreement
US and Chinese trade representatives said a trade framework has been reached, with both sides seeking approval from Trump and Xi Jinping to carry on discussions.
This progress comes after an important deal reached in mid May, which stopped the enforcement of most tariffs for 90 days.
The most crucial items of the initial agreement is reducing limits on US chip exports, and China’s rare-earth minerals and magnet exports.
US Rates
According to the Fedwatch tool, the odds of a 0.25% Fed June rate cut stood at just 1%, and at 17% for a July rate cut.
According to the London Securities Exchange data, traders now expect 50 basis points of US interest rate cuts overall this year, likely starting in October.
SPDR
Gold holdings at the SPDR Gold Trust fell 0.31 tons yesterday to a total of 935.91 tons, away from May 13 highs at 936.22 tons.
Euro moves in a negative zone after US-China trade agreement
The euro fell in European trade on Wednesday on track for the first loss in three days against the dollar, as recession concerns diminished following an initial US-China trade agreement in China.
The odds of an ECB interest rate cut in July dropped, with the eyes now focused on US inflation data later today to gauge the likelihood of Fed rate cuts in the second half of the year.
The Price
The EUR/USD price fell 0.15% today to $1.1405, with a session-high at $1.1439.
The euro rose 0.1% on Tuesday against the dollar, the second profit in a row.
US Dollar
The dollar index rose 0.1% on Wednesday against a basket of major rivals as US recession fears took a back seat.
Trade Agreement
US and Chinese trade representatives said a trade framework has been reached, with both sides seeking approval from Trump and Xi Jinping to carry on discussions.
This progress comes after an important deal reached in mid May, which stopped the enforcement of most tariffs for 90 days.
The most crucial items of the initial agreement is reducing limits on US chip exports, and China’s rare-earth minerals and magnet exports.
European Rates
ECB President Christine Lagarde hinted at the possible end of the current cycle of policy easing, which was in response to a combined shock such as the Covid 19 pandemic, the Ukrainian war, and the energy crisis.
According to a Reuters source, most ECB members now aim at holding interest rates unchanged in July, with the global markets now expecting just an additional 25 basis points of rate cuts by the end of the year.
The odds of a 0.25% ECB rate cut in July now stood below 30%, with traders awaiting more eurozone data and remarks by ECB officials to gather more clues.
Yen extends losses after US-China trade agreement
The Japanese yen fell in Asian trade on Wednesday against a basket of major rivals, extending losses against the dollar for the second straight session and about to mark a two-week trough.
The decline comes amid slower haven demand on the currency as the US and China reached a trade framework agreement following intensive negotiations in London.
The Bank of Japan is convening next week to discuss monetary policies, with the odds of a 0.25% rate hike still below 50%.
The Price
The USD/JPY price rose 0.2% today to 145.16 yen per dollar, with a session-low at 144.65.
The yen lost 0.2% on Tuesday against the dollar, marking the third loss in four days, and plumbing a two-week trough at 145.29 amid little progress in US-China trade talks.
Trade Agreement
US and Chinese trade representatives said a trade framework has been reached, with both sides seeking approval from Trump and Xi Jinping to carry on discussions.
This progress comes after an important deal reached in mid May, which stopped the enforcement of most tariffs for 90 days.
The most crucial items of the initial agreement is reducing limits on US chip exports, and China’s rare-earth minerals and magnet exports.
Japanese Rates
The Bank of Japan is meeting on June 16-17 to discuss the latest economic developments and suitable policies.
Following recent GDP growth data, the odds of a Bank of Japan 0.25% interest rate hike in June rose from 40% to 45%.
Bank of Japan Deputy Governor Shinichi Uchida said the bank will continue to raise interest rates if the economy recovers from the negative impact of US tariffs, however he still cautioned that the economic outlook remains highly uncertain.
Now traders await more Japanese data on inflation, unemployment, and wages to gather additional clues.