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Risk on as US, China grant trade concessions

While the US-Chinese trade war gets a respite, the UK released a damage report for a no-deal Brexit scenario.

Centtrip: Risk on as US, China grant trade concessions

Washington and Beijing have agreed concessions ahead of the trade talks next month. The news boosted the Dollar, which rose to a six-week high against the Yen in early trade and stoked investors’ appetite for risk.

China yesterday, 11 September announced it would exempt some of US goods from tariffs, including anti-cancer drugs and animal feed ingredients. In response, US President Donald Trump welcomed the news and said in a tweet he would delay a scheduled increase in tariffs from 25 per cent to 30 per cent on $250 billion’s worth of Chinese imports by two weeks in October.

The concessions improved risk sentiment, in what has so far been a cautious week in foreign exchange ahead of the European Central Bank’s meeting today.

Policymakers are widely expected to ease policy to support flagging growth, which has been weighing on the Euro. The single currency has shed 3.5 per cent since June and fell to a one-week low of $1.0983 overnight.

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 probably hinge on the confirmation of a rate cut.

Meanwhile, export-focused Asian currencies climbed. Stocks also rose, but safety assets such as bonds sold. The Yen dropped by 0.5 per cent against a rising Australian Dollar and hit 108.16 against the greenback, its weakest since 1 August. The Aussie also posted a six-week high against the Dollar, while the Chinese Yuan rose 0.4 per cent to a three-week high of 7.0855 against the Dollar.

Sterling dipped after Scotland’s highest civil court ruled yesterday 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 Pound fell by as much as 0.4 per cent to $1.2313 overnight.

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