Forex traders have been eagerly waiting for this moment and now it finally happened, following intense negotiations and speculations, which heavily influenced the market.
President Donald Trump has agreed to a limited trade agreement with China, meaning that existing tariff rates on goods coming from the Asian giant will be rolled back, while new levies will be canceled.
The deal is expected to go into effect this Sunday, as part of a bigger deal, trying to boost Chinese purchases of farm goods from the United States, but also obtain new concessions, revealed people familiar with the matter.
The U.S. president had a meeting with top trade and economic advisers this Thursday, while senior administration officials were making call after call, in their attempt to tout the general outlines of the deal.
Harsh conditions for China
According to the Wall Street Journal, citing one of the President’s advisers, Michael Pillsbury, the deal requires China to buy agricultural goods totaling at least $50 billion in 2020, as well as energy and other goods. In exchange for meeting these conditions, the United States is willing to reduce the tariff rate on several imports from China, which is currently between 15% and 25%.
“We welcome the news that a U.S.-China phase one deal is imminent,” said Mayron Brilliant, United States’ Chamber of Commerce executive vice president and head of international affairs.
“It will bring stability to the U.S.-China relationship, but make no mistake about it: There is still more work ahead and more problems to be solved.”
As expected, the dollar registered an almost two-week high against the Japanese yen on Thursday, following the initial reports regarding the trade deal, just a few days before the new tariffs on imports were supposed to be imposed. But things changed a bit on Friday morning, seeing the currency falling 0.6%, its biggest daily fall in the last six months, with the global risk appetite boosted.
Right now, the majority of currency traders expect the trade war between the two countries to de-escalate, after Washington already settled its terms for a final version of a trade deal.
The UK elections’ result had its impact on the U.S. Dollar
On the other side, Boris Johnson’s pro-Brexit Conservative party won the majority in the UK, an aspect which also influenced the evolution of the United States dollar.
“It’s kind of a mirror image of what we were seeing in December last year where risk was being pummeled very aggressively and markets were very uncertain,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.
“As it stands now, the risk environment is improving materially, and so that provides a more constructive backdrop for the risk-on or higher-beta currencies,” he added.