Dollar jumps vs safe-haven yen on U.S.-China trade deal hopes

NEW YORK (Reuters) - The dollar jumped to a near two-week high against the safe-haven Japanese yen on Thursday on reports that the United States has reached a deal in principle on trade with China, just days before new U.S. tariffs on Chinese imports were due to be imposed.

FILE PHOTO: Japan Yen and U.S. Dollar notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The United States has reached a “phase-one” trade deal in principle with China, a source briefed on talks between the two nations said on Thursday, saying a statement from the White House was expected soon.

The report follows U.S. President Donald Trump’s comments from earlier in the session when he said the United States was “very close” to nailing down a deal with China.

Against the Japanese yen, which tends to draw investors during times of geopolitical or financial stress as Japan is the world’s biggest creditor nation, the dollar rose 0.75% to 109.35, the highest since December 2.

Against the offshore Chinese yuan, the dollar fell 1.06% to a one-month low.

“We have seen a strong risk-on reaction in the FX markets,” said Vassili Serebriakov, an FX strategist at UBS in New York.

Investors have been watching U.S.-China trade talks to see whether the United States would impose tariffs on nearly $160 billion in Chinese consumer goods by Dec. 15.

The dollar index, which measures the greenback against six major currencies, was up 0.3%.

Thursday’s strength helped the dollar reclaim most of the ground lost on Wednesday after the Federal Reserve held interest rates steady and said a significant, persistent inflation rise would be needed to hike rates again.

The euro was 0.11% lower against the dollar after the European Central Bank maintained its ultra-easy monetary policy at Christine Lagarde’s first meeting in charge on Thursday.

“It’s pretty much a status quo in many ways,” said Brad Bechtel, managing director FX at Jefferies in New York.

The British pound stepped back from a near nine-month high on Thursday as investors booked profits from a recent rally in case of a surprise UK election outcome later in the day. Sterling was 0.28% lower against the dollar.

Voters were heading to the polls in an election that will pave the way for Brexit under Prime Minister Boris Johnson or propel Britain toward another referendum that could ultimately reverse the decision to leave the European Union.

Voting ends at 2200 GMT (5 p.m. ET), with exit polls and early results due after that. Traders expect an outcome as early as 0300 GMT on Friday (10 p.m. ET on Thursday).

Reporting by Saqib Iqbal Ahmed; editing by Jonathan Oatis and Chizu Nomiyama