Dollar climbs at end of wild week on signs of easing in US-China trade tensions

The dollar headed for its first weekly gain since mid-March on Friday, after China granted some exemptions to U.S. imports, raising expectations that the trade war between the world’s two largest economies may be closer to abating.

The U.S. currency has been whipsawed this week by conflicting signs for a thaw in fraught relations between Washington and Beijing.

On Tuesday, U.S. President Donald Trump suggested a de-escalation of their tit-for-tat tariff battle, saying direct talks were already underway. Beijing later denied that discussions had started.

“Traders are definitely headline-chasing at the moment,” said Bart Wakabayashi, Tokyo branch manager at State Street.

“If there’s any sort of sign of an unwinding of these tariffs, there’s going to be an unwinding of positions that have been put in place because of them.”

By Friday, a number of businesses that had been notified of the changes said China had granted some exemptions from its 125% tariffs on U.S. imports and was asking companies to identify the goods that could be eligible.

The dollar was higher against a basket of currencies , rising around 0.3% on the day and set for a modest weekly gain of 0.6%, its first since the middle of March.

“I don’t think that anything’s necessarily much clearer now, but it does feel like there’s no more ramping up. It feels like it’s coming the other way and if anything, it seems to be heading more towards de-escalation than escalation,” said City Index market strategist Fiona Cincotta.

However, even with some exemptions in place, there was still not enough clarity over the bigger picture to fully reverse some of the investor flows out of the dollar, which has dropped 4% since Trump first announced his “Liberation Day” tariffs on April 2.

“We have seen this pull out of oversold territory. But it’s definitely too early to be cracking open the champagne for the dollar recovery, we’re not quite there yet,” Cincotta said.

The dollar was up 0.5% on the day against the yen at 143.355 and was up roughly the same amount against the Swiss franc at 0.831 francs.

The euro fell 0.3% to $1.135, while the pound declined 0.3% to $1.3294 even after surprisingly strong UK retail sales figures.

Trump had rocked the dollar at the start of the week, sending it spiralling lower against other major currencies with his threats to fire Fed Chair Jerome Powell for not cutting interest rates quickly enough. It then jumped back on Tuesday when the president said he never had any intention of replacing the central bank boss.

Washington has made some progress in early trade talks with Asian allies South Korea and Japan.

The Japanese Finance Minister Katsunobu Kato said after meeting U.S. Treasury Secretary Scott Bessent that there were no talks on currency targets. Trump has accused Tokyo of weakening its currency to help its exporters.

Japan’s chief negotiator Ryosei Akazawa, who is also economy minister, will hold a second round of trade talks with Bessent next week.

“Even if reports are correct that there will be some easing of tariff rates, a hit to U.S. growth is still coming that will ensure volatility levels remain higher, equity markets are pressured to the downside and the global backdrop remains unfavourable for any sustained move higher in dollar/yen,” said MUFG strategist Derek Halpenny.

Bank of Japan Governor Kazuo Ueda on Thursday reiterated the central bank’s commitment to raising interest rates if underlying inflation moved towards the 2% target as projected, but repeated that policymakers needed to scrutinise the fallout from U.S. tariffs.

Core consumer prices in Japan’s capital rose 3.4% in April from a year earlier, data showed on Friday, accelerating for the second straight month.

The BOJ is widely expected to leave policy settings unchanged at its two-day meeting that ends on May 1.

Source: Reuters
--Agencies