Wednesday , 16 October 2019
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Dollar strengthens as trade war fears fade



The Chinese yuan rebounded and the dollar strengthened broadly on Monday as investors bought riskier assets, encouraged by signs that trade tensions have yet to hurt economic momentum.

As the second quarter corporate earnings season begins, investors appear to be ignoring the deepening conflict between the United States and China over trade.

Instead the focus is on decent economic data including favourable US jobs figures and a healthy rise in German exports which have pushed the dollar and the euro higher.

A broad appetite for risk in currency markets on Tuesday saw the dollar rise 0.3 percent against the Japanese yen, a currency usually bought during times of political uncertainty, to 111.08 yen, approaching a six-month high.

Elsewhere, the British pound rebounded on Tuesday as fears faded about a challenge to Prime Minister Theresa May’s leadership after the departures of two senior ministers.

Sterling turned positive and rose to $1.3301 before edging down to $1.3245 after data showed weaker-than-expected industrial and manufacturing growth in May.

On Monday, the British currency slid to $1.3189 after May’s foreign minister and Brexit negotiator quit in protest at her plans to keep close trade ties with the European Union.

Conservative lawmakers say May is probably safe from a leadership challenge but the departures have undermined the prime minister’s own proclamation of cabinet unity.

“The market is worried that yesterday’s resignations could be a sign of major instability within the British government. However, we see little indication of that… sterling should correct its losses,” said Commerzbank FX analyst Esther Maria Reichelt.

Markets still expect the Bank of England to raise interest rates at its next policy meeting on Aug. 2, but analysts warn that any full-blown political crisis could dent those expectations.

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