US dollar rises as traders await China talks outcome

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The dollar gained on Tuesday, helped by comments from U.S. officials that trade negotiations between Beijing and Washington were going well, although there was no clear consensus of a deal as the talks continued for a second day.

U.S. Commerce Secretary Howard Lutnick repeated President Donald Trump's upbeat tone on the trade discussions with top Chinese economic officials, but provided no details.

Sterling, on the other hand, slid against the greenback as British jobs data pointed to a weaker labor market. 

Officials from the world's two largest economies were meeting in London to try to defuse a dispute that has widened from tariffs to restrictions over rare earths.

Marc Chandler, chief market strategist at Bannockburn Forex in New York, said it was not only tariffs at stake in these negotiations but also export controls, and "that's going to be the basis for the quid pro quo."

Chandler said there are the makings of a deal: U.S. semiconductor chips for China's magnets and rare earths. But what should be noted, he said, is the asymmetry. "China can replace the chips that the U.S. exports easier than we can replace their magnets and processed earths." 

Trump and his Chinese counterpart Xi Jinping spoke by phone last week at a crucial time for both economies as signs of strain emerged from the former's cascade of tariff orders since January.

"Should the talks actually produce a substantial deal, traders would deem that to be very good news, and risk-reducing," wrote Thierry Wizman, global FX and rates strategist at Macquarie in New York.

"But we would expect that the U.S. would rally, in keeping with the recent pattern of seeing the U.S. dollar act as a risk currency. However, we would also expect that rally to be short-lived."

In afternoon trading, the dollar was up 0.2% against the yen at 144.92 yen, having lost about 8.5% against the Japanese currency this year. The yen has been supported overall by safe-haven flows during the market tumult unleashed by Trump's tariffs.

The Bank of Japan is also expected to maintain borrowing costs at current levels at next week's policy meeting. Its governor, Kazuo Ueda, suggested on Tuesday that the timing of the next interest rate hike could be pushed back. 

Risks to Japan's export-heavy economy from Trump's tariffs have pushed back market bets on the timing of the next rate hike, and investors are on the lookout for clues from Ueda on how soon rate increases could resume.

British wages rose by a slower-than-forecast 5.2% in the three months to April, pushing sterling down 0.4% against the dollar to $1.3496. 

The BoE is due to meet next week and is expected to keep the interest rate unchanged. Money market traders are pricing in about 48 basis points of cuts by year-end, up from about 39 bps before the data. 

The dollar index, which measures the U.S. currency against six others, edged higher to 99.087. It is down more than 8% this year as investors, worried about the impact of tariffs and trade tensions on the U.S. economy and growth, sold some U.S. assets and looked for alternatives. 

The euro, on the other hand, was flat at $1.1420, while the Australian dollar, often seen as a proxy for risk sentiment, was also little changed at US$0.6519.[AUD/]

Investor focus this week will be on the U.S. consumer price index report for May due on Wednesday. The report could give insight into the impact of tariffs, with investors wary of any flare-ups in inflation ahead of the Federal Reserve's policy meeting next week.        

The U.S. central bank is also expected to hold rates steady next week, with traders pricing in nearly two 25 basis-point cuts by the end of the year.

Currency              

bid

prices

at 10

June​

06:58

p.m. GMT

Descript RIC Last U.S. Pct YTD High Low

ion Close Chang Pct Bid Bid

Previous e

Session

Dollar 99.078 98.97 0.12% -8.68% 99.392 98.

index 86

Euro/Dol 1.142 1.1419 0.02% 10.32% $1.144 $1.

lar 7 137

3

Dollar/Y 144.93 144.62 0.23% -7.88% 145.26 144

en 5 .43

Euro/Yen 165.51​ 165.13 0.23% 1.4% 165.64 164

.64

Dollar/S 0.823 0.8216 0.16% -9.32% 0.8241 0.8

wiss 205

Sterling 1.3495 1.3549 -0.38 7.92% $1.356 $1.

/Dollar % 3 345

8​

Dollar/C 1.3688 1.3701 -0.09 -4.81% 1.3728 1.3

anadian % 669

Aussie/D 0.6518 0.6518 0.02% 5.36% $0.653 $0.

ollar 3 649

Euro/Swi 0.9398 0.9384 0.15% 0.05% 0.94 0.9

ss 364

Euro/Ste 0.846 0.8425 0.42% 2.26% 0.8468 0.8

rling 419

NZ 0.6041 0.6049 -0.12 7.98% $0.605 0.6

Dollar/D % 9 029

ollar

Dollar/N 10.118​ 10.0472 0.7% -10.98 10.119 10.

orway % 5 051

1

Euro/Nor 11.5534 11.4784 0.65% -1.83% 11.56 11.

way 479

Dollar/S 9.601 9.5885 0.13% -12.85 9.6372 9.5

weden % 651

Euro/Swe 10.9661 10.9545 0.11% -4.37% 10.975 10.

den 5 936

(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Barbara Lewis, Jan Harvey, William Maclean and Matthew Lewis)