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FOREX-Sino-U.S. trade thaw sparks risk rally as ECB looms

Published 12/09/2019, 05:59
Updated 12/09/2019, 06:00
© Reuters.  FOREX-Sino-U.S. trade thaw sparks risk rally as ECB looms
USD/KRW
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* Risk currencies rally after Trump postpones tariffs

* Dollar at six-week peak vs yen, yuan jumps

* Euro slides ahead of ECB meeting

By Tom Westbrook

SINGAPORE, Sept 12 (Reuters) - The dollar rose to a six-week

high against the safe-haven yen on Thursday after an exchange of

olive branches between Washington and Beijing on trade stoked

investors' appetite for risk.

Export-driven Asian currencies from Taiwan to Australia

rallied on the buoyant mood as the world's two largest economies

each granted concessions in their heated tariff dispute.

The improved sentiment comes in an otherwise cautious week

in foreign exchange, as investors await a key European Central

Bank meeting later on Thursday, at which policymakers are

expected to ease policy to support flagging growth.

China on Wednesday exempted a basket of U.S. goods from its

tariffs, while U.S. President Donald Trump said in a tweet he

would delay a scheduled tariff hike by two weeks in October.

"The nascent thaw in U.S. and China trade relations appears

to be gathering momentum," said Jeffrey Halley, senior market

analyst for Asia Pacific at brokerage OANDA in Singapore, who

added a warning that it was unlikely to last.

"Just as the presidential tweet on tariffs this morning has

injected more momentum...we are only one social media posting

away from a thoroughly unpredictable President turning sentiment

on its head," he said.

The ebbing hostilities supported broader "risk-on" trading.

Asian currencies climbed and stocks rose. Safety assets such as

bonds and the yen were sold.

The yen JPY=EBS dropped 0.5% against a rising Australian

dollar AUD=D3 and hit 108.16 against the greenback, its

weakest since Aug. 1. The Aussie hit a six-week high and the

Chinese yuan CNH= rose 0.4% to a three-week high of 7.0855

against the dollar.

The Taiwan dollar had its best day in a month, rising 0.5%

to 30.948 per U.S. dollar. The South Korean won KRW= stood at

1183.08 per dollar, its strongest since the end of July.

Outside of Asia, expectations for ECB easing this week have

weighed on the euro. The single currency EUR=EBS has shed 3.5%

since June and fell to a one-week low of $1.0983 overnight. It

was steady at $1.1013 by mid-session in Asia.

With growth slowing, the ECB has all but promised more

support for the economy in one of the most closely watched

meetings in years. The ECB is almost certain to cut rates, promise to keep

rates low for longer and provide banks relief from the side

effects of negative rates. However, new asset purchases, priced

in by markets, are not a done deal with some conservative

policymakers opposing the move.

"Market reaction will likely hinge on the confirmation of a

rate cut," said David de Garis, a director of economics and

markets at National Australia Bank in London.

"The real kicker though will not be whether QE is

re-started, but crucially, whether it leaves markets feeling the

ECB is running out of room, or hamstrung by internal

opposition," he said. "What markets would not want to hear is

during the press conference evidence of a disagreement."

Sterling also dipped after a Scottish court ruled on

Wednesday that Prime Minister Boris Johnson's suspension of the

British Parliament was unlawful, prompting immediate calls for

lawmakers to return to work as the government and Parliament

battle over the future of Brexit. The British pound GBP=D3 fell as much as 0.4% to $1.2313

overnight, and hovered around $1.2330 in Asian hours.

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