January 18, 2019 / 1:43 AM / 7 months ago

Trade optimism yields dollar's first positive week this year

NEW YORK (Reuters) - The dollar held firm against its rivals on Friday, set for its first weekly gain since mid-December on optimism about talks to end the trade war between China and the United States.

FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

Media reports on Thursday and Friday suggested both countries were considering concessions ahead of a Washington visit from Chinese Vice Premier Liu He on Jan. 30 and 31 for talks aimed at resolving the trade standoff between the world’s two largest economies.

China has offered to go on a six-year buying spree to ramp up imports from the United States in order to reconfigure the relation between the two countries, Bloomberg reported on Friday, citing people familiar with the matter.

U.S. Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs on Chinese goods and suggested offering a tariff rollback during the trade discussions scheduled for Jan. 30, the Wall Street Journal reported on Thursday, citing people familiar with the internal deliberations.

Although a Treasury spokesman denied Thursday’s report, the positive sentiment was enough to lift the dollar index and the three major U.S. stock indexes Friday morning. Following the publication of the Bloomberg story on Friday, the dollar index added to its gains rising 0.3 percent, last at 96.352.

“Yesterday’s WSJ headline concerning a possible rollback of the Trump tariffs was a setback for (the U.S. dollar/renminbi cross), and although it was subsequently denied, it had created confusion in the foreign exchange space,” said Stephen Gallo, European head of foreign exchange strategy at BMO Capital Markets in London.

Stronger-than-expected U.S. industrial production numbers also helped lift the greenback. American manufacturing output increased by the most in 10 months in December, pushed up by a surge in the production of motor vehicles and a range of other goods, the Federal Reserve said on Friday.

Going into 2019, weakness in the dollar was a consensus view among currency market traders. The bet was that the U.S. central bank would stop raising interest rates and the economy would slow after a fiscal boost last year. While expectations of a U.S. rate pause have manifested in money markets, bets on policy tightening by other major central banks have also receded, giving a boost to the dollar.

Against a basket of rivals, the dollar was set to rise 0.68 percent on the week, its first positive week since mid-December. Against the euro, the dollar had strengthened 0.26 percent to $1.137, its strongest since Jan. 4.

The pound slipped against the euro and against the dollar, trimming overnight gains, as traders wagered on a second referendum vote on Britain’s EU membership.

For a graphic on G10 FX MTD performance, see - tmsnrt.rs/2ASmz30

Reporting by Kate Duguid and Saikat Chatterjee; Editing by Steve Orlofsky and Tom Brown

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