(Updates prices, adds chart and CIBC comments)
* Risk-on mood on reports of U.S.-China deal terms
* UK election result boosts European currencies
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Elizabeth Howcroft
Dec 13 (Reuters) - The dollar fell 0.6% on Friday, with
global risk appetite boosted by the apparent clearing of two
clouds that have been hanging over world markets: U.S.-China
tariffs due on Dec. 15 and Britain's election.
Currency traders expect the U.S.-China trade war to
de-escalate, after U.S. sources said Washington had set out its
terms for a trade deal. UK Prime Minister Boris Johnson's pro-Brexit Conservative
party won a majority, which markets expect will fulfil Johnson's
promises to end the uncertainty around the UK's departure from
the EU. The Japanese yen, which fell when early indications of the
UK election result were announced on Thursday evening, continued
to slide on Friday. It was last down 0.3%, heading towards its
lowest against the dollar in more than six months JPY=EBS .
The dollar index .DXY was down 0.6%, its biggest daily
fall in six months.
The dollar weakened because risks around Brexit and the
trade war had dissipated, said Jeremy Stretch, head of G10 FX
strategy at CIBC Capital Markets.
"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," Stretch said.
"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 said.
TRADE DEAL TERMS
The U.S. trade deal proposal includes an offer to suspend
some of the next wave of tariffs on Chinese goods due on Sunday
in exchange for China's buying more American farm goods.
Neither Washington nor Beijing have made official statements
about reports of the deal, but U.S. President Donald Trump
tweeted about it. After 17 months of market-moving comments from both the U.S.
and China sides of the trade war, some scepticism remains and
traders will be waiting until the Dec. 15 tariff deadline has
passed before believing in the deal.
"Only if it's actually signed and it's really official then
the market will fully price it in," said Commerzbank FX
strategist Thu Lan Nguyen.
Although the offshore yuan was initially boosted on trade
deal hopes, it was down 0.5% versus the dollar in early London
trading, partly erasing the previous day's gains CNH=EBS .
Nguyen said she expected the yuan to appreciate to below 6.9
- at least temporarily - when a trade deal is signed.
RENEWED MOMENTUM FOR BREXIT
European currencies were boosted by the market-friendly
results of Britain's election, which delivered a
bigger-than-expected parliamentary majority the Conservatives.
The euro was up 0.4% against the dollar, having hit a
four-month high in Asian trading hours before paring some gains
EUR=EBS .
The pound was last up 1.7% versus the dollar, at $1.3393. It
reached a high of $1.3516 in Asian trading GBP=D3 . Versus the
euro, it was last at 83.45 pence EURGBP=D3 .
CIBC's Stretch said that if the risk-on mood continues then
small, open economies that are leveraged to global growth will
be potential outperformers, giving the example of the Swedish
crown EURSEK=D3 .
But, with a trade deal deadline of December 2020, the
uncertainty is far from over. "There is a risk of some disappointment if businesses
continue to hold back on spending until they have more clarity
on the future trading relationship," currency analysts at MUFG
wrote in a note to clients.
risk https://tmsnrt.rs/2smNwdF
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(Editing by Larry King)