U.S. Markets

Dollar drops as report casts doubts on trade deal

NEW YORK (Reuters) - The dollar dropped against the yen and the euro on Monday after a media report dashed fresh hopes that the United States and China are close to reaching a trade deal.

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CNBC reported that China is pessimistic about reaching a trade deal due to U.S. President Donald Trump’s reluctance to roll back tariffs.

It came after Chinese state media Xinhua said on Sunday that China and the United States had “constructive talks” on trade in a high-level phone call on Saturday.

“I think the market is overreacting to this,” said Mazen Issa, senior FX strategist at TD Securities in New York. “There was nothing substantive that came out that suggested the deal is off or on, it’s just the ebb and flow” of the news each day.

Investors are looking for signs that tariffs imposed on each country’s goods will be rolled back, as they are viewed as harming global economic growth.

Another round of U.S. tariffs on Chinese goods is scheduled to take effect on Dec. 15.

The yen JPY= gained sharply on the CNBC report, rising to 108.64, from 109.02. It was last 108.60.

The euro EUR= also increased, before making larger gains after the Federal Reserve said that Trump and Fed Chair Jerome Powell met at the White House on Monday morning.

“Everything was discussed including interest rates, negative interest, low inflation, easing, Dollar strength & its effect on manufacturing, trade with China, E.U. & others, etc.,” Trump tweeted soon after, calling the session “good & cordial.”

The single currency was last at $1.1078, after earlier reaching $1.1090, the highest since Nov. 7.

The single currency has rebounded from a more than two-year low of 1.0877 on Oct. 1 on optimism a trade deal will be signed and that the region’s economy will improve.

Still analysts say that the European and global economies need to show more strength to sustain a euro rally.

“One of the things the euro is, is a pro-cyclical or growth currency and so when global growth performs well you tend to see the euro perform well, but we’re not there yet,” said Issa.

Sterling, meanwhile, was boosted by expectations that the Conservative (Tory) Party could win a majority in the Dec. 12 election.

It was also supported by British Prime Minister Boris Johnson saying that all Tory candidates in the election have pledged to back his Brexit deal, which could open the door to getting the agreement through parliament.

Editing by Steve Orlofsky and Lisa Shumaker