By Saikat Chatterjee
LONDON, May 10 (Reuters) – The euro firmed on Friday and is
poised for a second consecutive week of gains on growing fears
that any escalation in the trade conflict between the United
States and China would force U.S. policymakers to cut interest
U.S. President Donald Trump’s tariff increase to 25% from
10% on $200 billion of Chinese goods kicked in on Friday, and
Beijing said it would strike back. The two sides are pursuing
last-ditch talks to try to salvage a trade deal. While U.S. and Chinese officials return to the negotiating
table later on Friday, investors have quietly ratcheted up bets
of a U.S. interest rate cut, with markets now roughly expecting
one rate hike by the end of 2019.
Athanasios Vamvakidis, an FX strategist at Bank of America
Merrill Lynch, said if China retaliated then the threat of a
global trade war would affect the outlook of the U.S. economy
and increase the chances of a Fed rate cut.
“In this case, the Fed has more room to ease than most other
central banks, suggesting eventually a weaker dollar against
both the euro and the yen,” he said.
The single currency edged 0.2% higher to $1.1239
on Friday and was on track for a second consecutive week of
John Marley, a senior currency consultant at FX risk
management specialist, SmartCurrencyBusiness, said Europe was
seen as a barometer for global growth and markets would benefit
from any trade deal between China and the United States.
Trump on Friday said he was in “absolutely no rush” to
finalise a trade agreement with China as U.S. negotiators
prepared to continue talks in Washington, saying discussions
were continuing “in a very congenial manner”. Broadly, risk appetite was muted though some of the
higher-yielding currencies such as the Australian dollar which
was heavily sold this week when Trump unexpectedly ramped up
trade tensions, gained.
The dollar index measuring the U.S. currency against
a basket of six major currencies, of which the euro is a main
component, was broadly steady at 97.38.
Still, trade tensions have had broadly little impact on
foreign exchange markets with typical perceived safe-haven
assets such as the Japanese yen only gaining 1.2% this week
while broader currency market volatility gauges were subdued
despite a minor bounce this week.
Elsewhere, the pound held around the $1.30 level
after sustaining some losses this week after first quarter
British GDP data broadly matched expectations with a 0.5 percent
(Reporting by Saikat Chatterjee;
Editing by Alison Williams)
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