TOKYO, July 24 — The dollar edged higher against the euro today following progress in US trade talks with key partners, but slipped against the yen as Japan’s currency got a lift from expectations for higher interest rates.
The Japanese central bank’s deputy governor, Shinichi Uchida, said a trade deal with Washington had reduced economic uncertainty, comments that fuelled optimism in the market about the potential resumption of interest rate hikes.
Still, some analysts think the yen faces persistent headwinds due to domestic political uncertainty following Sunday’s upper house election.
The European Union is nearing a deal that would impose a broad 15 per cent tariff on EU goods entering the United States, roughly in line with economists’ expectations.
Meanwhile, risk assets rallied as the trade deals eased fears over the economic fallout of a global trade war.
The risk-sensitive Australian dollar rose to an eight-month high of US$0.6625 today.
The euro fell 0.1 per cent at US$1.1760, not far from a high of US$1.1830 it hit earlier this month, which marked its strongest level in more than three years.
“We maintain our view that we would see some wobbles in risky assets in August as we see some slowdown in the (US) employment data,” said Mohit Kumar, economist at Jefferies.
“As of now, there has been very little tariff impact on the hard data. But that does not mean it’s not coming,” he added, arguing it would take at least three months to see the fallout of trade duties on hard economic figures.
Against the yen, the dollar fell 0.10 per cent to 146.35, extending its fall against the Japanese currency to a fourth straight session.
Olivier Korber, forex strategist at Societe Generale, expects the yen to strengthen further, citing support from the trade deal and prospects for higher interest rates.
“The local press reported that he (Prime Minister Shigeru Ishiba) should decide if he will resign in late August and, if that were to happen, a new party leader would probably be selected in September,” Korber said.
“This would ensure a smoother political transition, thus limiting market uncertainty,” he added.
Ishiba denied yesterday he had decided to quit after a source and media reports said he planned to announce his resignation to take responsibility for a bruising upper house election defeat.
Trade negotiations aside, market focus is also on a rate decision from the European Central Bank later in the day.
Expectations are for policymakers to keep rates unchanged, though markets will look out for what they say about the outlook for monetary policy. Investors generally expect one more ECB rate cut by the end of the year, most likely in December.
Data showed that German business activity continued to grow marginally in July.
Currencies mostly shrugged off news that US President Donald Trump, a vocal critic of Federal Reserve Chair Jerome Powell, will visit the central bank today, a surprise move that escalates tensions between the administration and the Fed. — Reuters