FOREX-Dollar, yuan jump after U.S. makes trade concessions to China

Reuters

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 (Recasts, new throughout; adds analyst quote)
    By Kate Duguid
    NEW YORK, Aug 13 (Reuters) - The U.S. dollar and offshore
yuan rose on Tuesday after the Trump administration said it
would delay 10% tariffs on some Chinese products scheduled to
begin next month, a significant concession in the trade conflict
between Washington and Beijing.   
    The U.S. Trade Representative said it would delay tariffs on
laptops and cellphones, among other products, set to be imposed
in September.  urn:newsml:reuters.com:*:nL2N2590F9
    The U.S. dollar clobbered the Japanese yen  JPY= , last up
1.28% to 106.65 yen per dollar. The yen is a safe-haven asset
which benefits in moments of geopolitical uncertainty and during
economic downturns. The dollar index  .DXY  was 0.45% higher at
97.815, and the offshore Chinese yuan  CNH=  was 1.25% stronger
at 7.0125.
    Some analysts said they did not expect the currency trends
to continue overnight.
    "The huge positioning squeeze, notably on gold and yen
crosses, inclusive of CNH, after the latest news should be
largely done," said Alan Ruskin, chief international strategist
at Deutsche Bank.  
    "It is still entirely possible that rather than a resolution
to the trade dispute, both sides live with a 'new normal' with a
world of elevated tariffs, that may have carve-outs for
politically sensitive goods."
    Other safe havens like Treasury debt also saw prices fall as
investors moved money into riskier assets. The spread between 2-
and 10-year Treasury yields  US2US10=TWEB , the best-known
measure of the yield curve, fell as low as 0.6 basis point, its
flattest in more than 12 years. An inversion of the yield curve
- when the spread falls below zero - is an indicator of coming
recession.  urn:newsml:reuters.com:*:nL2N25911L
    The curve flattened because 2-year Treasury yields
 US2YT=RR , which move with market expectations of interest rate
policy, rose as rate-cut bets were tempered. 
    Two to three rate cuts have been priced in by the end of the
year, though on Tuesday expectations of two rate cuts increased
to 49.3% from 45.7% a day prior, according to CME Group's
FedWatch tool, and bets on three cuts fell from 36.1% to 32.8%. 
    The U.S. dollar was also buoyed on Tuesday after the United
States reported that consumer prices in July increased, though
the easing of trade tensions could tamp down further
inflationary pressures.  urn:newsml:reuters.com:*:nL2N2581H9
    Financial markets have fully priced in an interest rate cut
in September. Expectations that rates will be cut by 25 basis
points rose to 95.0% from 84.6% a day prior as fewer traders bet
on a more dramatic 50-basis-point cut next month.

 (Reporting by Kate Duguid in New York and Tommy Wilkes in
London; editing by Jonathan Oatis)
 ((kate.duguid@thomsonreuters.com; +646-223-6118; Reuters
Messaging: kate.duguid@thomsonreuters.com@thomsonreuters.net))

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