Yen Drops As Yuan, Euro And Pound Bounce On Trade Optimism
The Japanese Yen continues to lose ground against the majors after a meteoric rise in recent weeks. Reports of narrowing differences between the U.S and China, as part of ongoing trade talks, continue to lessen demand for safe-havens such as Yen. Gold another safe-haven has also pulled lower after a meteoric rise to six-year highs.
Trade Talks Impact
Growing optimism of the U.S. and China, reaching an agreement that would avert the imposition of trade tariffs has helped avert concerns in the broader financial markets.
Treasury yields, which have been on the decline in recent weeks, have started edging higher, helping shrug off recession concerns. A spike in treasury yield is another development that has continued to weigh in on safe-haven demand.
President, Donald Trump, beaming in confidence about an interim trade pact with China has helped bring some form of stability in the markets. The two economic powerhouses are preparing a round of talks in a bid to avert a trade war whose effects have so far been felt far and wide.
Going by recent developments in the financial markets, a trade war is the last thing that the global economy needs given the ever-growing threat of recession.
Yuan, Euro, Pound Bounce Back
As safe havens continued to lose ground on declining demand, the Yuan has continued to strengthen having already risen to four-week highs against the dollar. The Chinese currency had come under immense pressure on the collapse of trade talks between with the U.S. Growing concerns about the health of the Chinese economy in the wake of weak economic data and the impact of trade tariffs triggered devaluation of the currency.
The Euro, which has also come under immense pressure amidst growing concerns that the European economy is plunging into recession, has steadied after wild swings early in the weak. The European Central Bank resuming government debt purchases is the latest catalyst strengthening the Euro.
The Euro has bounced back to the $1.1100 level after plunging on the ECB cutting interest rates this time by ten basis points. The deposit rate is currently languishing at a record low of 0.5% amidst struggles in the European Union economy.
A resurgent British pound also continues to strengthen against the dollar after a roller-coaster first half of the year. The pound continues to edge higher on the British Parliament succeeding in blocking a move by Prime Minister Boris Johnson for a no Brexit deal with the European Union. However, it remains vulnerable given the uncertainty the ongoing Brexit debate as well as growing concerns about the health of the U.K economy.
The U.S. Dollar has so far remained resilient against other major currencies on the strength of the U.S. economy. Appeal as a safe-haven has also contributed to the strength of the greenback.
However, an imminent rate cut could rattle the market a development that could result in the currency losing some ground. Solid economic data has so far cast some doubt on whether the Federal Reserve will cut the benchmark rate at its next policy meeting scheduled for September 17-18.