NEW YORK, Aug 13 — The US dollar took off this morning, clobbering the Japanese yen, after the Trump administration said it would delay 10 per cent tariffs on some Chinese products scheduled to begin next month, a significant concession in the trade conflict between Washington and Beijing.
The US Trade Representative said it would delay tariffs on laptops and cellphones, among other products, set to be imposed in September.
The US dollar rose 1.49 per cent to 106.85 Japanese yen per dollar. The yen is a safe-haven asset which benefits in moments of geopolitical uncertainty and during economic downturns. The US-China trade war had begun to affect economic growth in the United States and raise fears that the conflict could lead to a recession.
Other safe havens like Treasury bonds also saw prices fall as investors moved money into riskier assets. The dollar index was 0.38 per cent higher at 97.749, and the offshore Chinese yuan was 1.38 per cent stronger at 7.0050.
The news had a modest effect on interest rate forecasts for 2019. Two to three cuts have been priced in by the end of the year, though on Tuesday morning expectations of two rate cuts increased to 47.9 per cent from 45.7 per cent a day prior, according to CME Group’s FedWatch tool.
Still, some analysts cautioned a moderate response. “The fact is that we have seen this film before, and it could be naive to think so much on the back of this headline,” said Naeem Aslam, chief market analyst at ThinkMarkets in London.
The US dollar was also buoyed today after the United States reported that consumer prices in July increased, though the easing of trade tensions could tamp down further inflationary pressures.
The Labor Department on Tuesday reported that the consumer price index increased 0.3 per cent last month, lifted by gains in the cost of energy products and a range of other goods. The CPI had edged up 0.1 per cent for two straight months. In the 12 months through July, the CPI increased 1.8 per cent after advancing 1.6 per cent in June. Economists polled by Reuters had forecast the CPI would accelerate 0.3 per cent in July and rise 1.7 per cent on a year-on-year basis.
Financial markets have fully priced in an interest rate cut in September. Expectations that rates will be cut by 25 basis points rose to 92.7 per cent from 84.6 per cent a day prior as fewer traders bet on a more dramatic 50-basis-point cut next month. — Reuters
