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Dollar Slips as Chinese Tariff Cut Prompts Modest Risk-On Move

·3-min read

By Peter Nurse - The yuan is slightly stronger Thursday following the move by China to cut tariffs on some imported goods from the U.S., leading other currencies higher against the dollar in a broad but modest 'risk-on' move.

At 03:05 ET (0805 GMT), USD/CNY traded at 6.9702, down 0.1%, back below the 7.0 level, while the U.S. Dollar Index that tracks the greenback against a basket of six other currencies dropped 0.1% to 98.13.

China said early Thursday it will halve tariffs on $75 billion of U.S. imports from Feb. 14. This comes shortly after the two countries agreed an interim trade deal, ending a long-running trade dispute. This should help improve conditions for the second phase of negotiations, which are widely seen as being more difficult.

The tariff reductions come as China struggles to mitigate the economic damage caused by a coronavirus outbreak, which has so far claimed more than 560 lives. The death toll rose another 14% on Thursday, according to Chinese authorities, continuing a very gradual slowdown in fatalities.

Elsewhere, German factory orders unexpectedly fell 2.1% in December on weaker demand from other eurozone countries. This was the biggest drop since February, and dampened the more positive mood generated by a number of confidence surveys. It suggested that a manufacturing slump will continue to hamper overall growth in Europe's largest economy.

Despite this release, the euro gained against the dollar, with EUR/USD up 0.1% at 1.1004, after ECB President Christine Lagarde told the EU parliament that the ECB faced a much-reduced scope for policy action. Sterling was broadly flat against the greenback, with GBP/USD down 0.1% at 1.2988.

Also in Asia, the Reserve Bank of India held rates steady earlier Thursday, as expected, with its key repo rate unchanged at 5.15% and reverse repo rate at 4.9%.

The central bank has a tough task ahead of it as inflation levels are already high but the economy is forecast to grow 5% in the year ending in March, its weakest pace in 11 years.

At 03:05 ET (0805 GMT), USD/INR traded at 71.207, up 0.1%.

Staying with rate decisions, the Czech central bank is also expected to keep its benchmark rate unchanged, this time at 2%, for the sixth meeting in a row.

That said, this may be a close call as inflation is climbing at the fastest rate in seven years. But worries about the state of the world economy, especially given the outbreak of the coronavirus in Asia, will likely stay the central bank’s hand.

At 03:05 ET (0805 GMT), EUR/CZK traded at 25.06, up 0.1%.

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