July 16, 2018 / 6:34 AM / 5 months ago

FOREX-Dollar gains fade on China-EU summit, U.S. data eyed

SYDNEY, July 16 (Reuters) - The dollar eased a bit against most major currencies on positive trade talks between China and the European Union although softer economic data from China and Beijing’s escalating trade war with the United States tempered the enthusiasm.

Chinese Premier Li Keqiang said on Monday the country will raise its market access and reduce tariff rates as it seeks more balanced trade with the European Union.

The remarks came just after the country’s second quarter data pointed to an economic slowdown, raising concerns about the potential fallout from a full-blown Sino-U.S. trade war.

The China-EU meeting is expected to produce a modest communique affirming the commitment of both sides to the multilateral trading system. Li said the two sides agreed to exchange market offers for the first time, which could reinvigorate long-running investment treaty talks.

The positive tone of the talks nudged up riskier currencies like the Australian and New Zealand dollars, as well as the euro, and in turn pushed the dollar index 0.2 percent lower against a basket of major currencies to 94.608.

The dollar was mostly flat on the safe harbour yen at 112.38.

The losses in the dollar index occurred despite Monday’s data showing China’s economic growth cooled to 6.7 percent in the second quarter of 2018, from the 6.8 percent growth in each of the previous three quarters.

Separate monthly data showed China’s industrial output weakened to a two-year low.

The softer economic figures weighed on Asian markets generally, with the Shanghai Composite index and the blue-chip CSI300 - the world’s worst-performing major indexes this year - each off 0.7 percent. The Chinese yuan also dipped on the data but only briefly. It was last up 0.1 percent at 6.7014. It hit an 11-month trough of 6.7326 earlier this month amid worries about the economic hit to China’s exports from stiff U.S. tariffs.

However, some economists warned against reading too much into data series.

“In the big scheme of things there is not much to worry about these numbers,” said Shane Oliver, head of investment strategy at Sydney-based wealth manager AMP. “The export and import numbers we saw last week had held up well.”

“Having said that, the Chinese economy is vulnerable to a full-blown trade skirmish. If it progresses to the next level then the threat to the Chinese economy becomes greater,” Oliver said.

Traders are now looking to June retail sales from the United States for further cues about the health of the U.S economy.

Federal Reserve chief Jerome Powell will make a semiannual appearance before Congress later this week. Ahead of the meeting, the central bank released its accompanying policy report which showed U.S. economic growth and the Fed expecting to keep raising rates gradually.

The U.S. economy, which is on its second longest expansion on record, has shown few signs of stress from the trade row with China.

Elsewhere, the euro was a tad higher at 1.1702 to stay above a nine-day trough of $1.1610 touched last week.

The pound gained slightly to $1.3246 from last week’s low of $1.3101.

The tone for the two currencies could be set by eurozone inflation data this week and ongoing Brexit discussions as British Prime Minister Theresa May battles for her political survival.

On Monday, British lawmakers vote on amendments to legislation on the government’s post-Brexit customs regime. Leading eurosceptics are set to vote in favour of amendments that May opposes and back their own proposals to toughen up her exit plan.

While May is not expected to be defeated on the amendments, a high number of votes in favour of altering the customs bill by members of her party could further undermine her negotiating strategy. (Reporting by Swati Pandey; Editing by Eric Meijer & Shri Navaratnam)

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