U.S. Markets

Dollar edges higher, but gains tempered amid U.S.-China uncertainty

NEW YORK (Reuters) - The dollar rose on Thursday, with gains limited ahead of a two-day summit between U.S. President Donald Trump and his Chinese counterpart Xi Jinping that could have geopolitical ramifications, and Friday’s U.S. jobs report.

Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016. REUTERS/Jason Lee/Illustration/File Photo

“The long-awaited meeting ... could well be a combustible affair, with the future of trade relations between the superpowers at stake,” said Dennis de Jong, managing director at online FX broker in Limassol, Cyprus.

“The market will be hoping for stable, constructive talks, but knows all too well that Trump is capable of changing the agenda at any moment.”

He added that Trump was under huge pressure to deliver on election promises to secure blue-collar jobs lost to China in recent years, “but playing hardball with a country that owns a significant share of U.S. debt comes with its own risks.”

North Korea is also a hot-button issue for both the United States and China. The most pressing problem facing Trump and Xi is how to persuade nuclear-armed North Korea to halt unpredictable behavior like missile test launches that have heightened tensions in South Korea and Japan, analysts said.

North Korea is also working to develop an intercontinental ballistic missile capable of hitting the United States.

Federal Reserve minutes released on Wednesday initially pressured the dollar.

“They didn’t really alter the view of a slow pace of U.S. interest rate rises this year,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Investors are also focused on Friday’s U.S. non-farm payrolls report to see whether the labor market is strong enough to absorb multiple rate hikes this year.

Wall Street economists are forecasting job gains of 180,000 in March, compared with 235,000 in February. [ECONUS]

In late trading, the dollar index was up 0.1 percent at 100.69 .DXY. The greenback also rose 0.1 percent versus the Japanese yen at 110.80 JPY=,

The euro fell 0.2 percent to 1.0646 EUR=, after dropping to a three-week low following European Central Bank President Mario Draghi's comments saying he saw no need, for now, to deviate from the ECB's policy path.

Before altering its stance, the ECB must have sufficient confidence that inflation would return to target over a medium-term horizon, he said.

The single currency had jumped above $1.09 EUR= in March for the first time since early November after Draghi signaled a diminishing urgency for expansionary policy, with investors pricing a possible rate hike in early 2018.

(To view a graphic on 'Global foreign exchange rates' click here)

Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard Chang