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The greenback had risen slightly against the yen and trimmed losses versus the euro late on Wednesday after the Fed, in the minutes of its latest meeting in January, said the U.S. economy and its labour market remained strong, prompting some expectations of at least one more interest rate hike this year.

The dollar index against a basket of six major currencies added 0.17 percent to 96.614, crawling away from a two-week trough of 96.286 marked on Wednesday.

“The dollar drew some lift as the minutes appeared to have appeased market participants who were clinging to views that the Fed would hike rates one more time this year - but all in all, the minutes were in line with what the Fed said in January,” said Daisuke Karakama, chief market economist at Mizuho Bank.

“The market’s focal point will now shift back to trade. The U.S.-China trade negotiation deadline could be extended and that may mean Europe and Japan could be faced with trade issues.”

U.S. President Donald Trump on Wednesday said the United States would impose tariffs on European car imports if it cannot reach a trade deal with the European Union.

·       The dollar was a shade weaker at 110.735 yen after rising 0.25 percent overnight.

·       The euro was little changed at $1.1331 after being nudged off a two-week high of $1.1371 scaled earlier on Wednesday.

·       The pound dipped 0.15 percent to $1.3031 pulling back further from a near three-week high of $1.3109 touched the previous day.

Sterling took a knock after three lawmakers defected from British Prime Minister Theresa May’s ruling Conservative party in a move that could undermine her Brexit strategy.

The pound was also weighed after Fitch Ratings said on Wednesday it may downgrade the United Kingdom’s “AA” debt rating based on growing Brexit uncertainty.

·       It’s not clear what Trump wants out of China. He may not know himself. His seeming conciliatory comments yesterday are at odds with earlier bluster and bullying. The top trade guy, Lighthizer, is presumably tearing his hair out. And where does this currency clause come into things? Nobody has ever heard of a trade deal that contains a currency clause, although the French perhaps had such a thing back in the 19th century, the age of mercantilism. Because a currency clause is so out of place, the idea likely came from Trump.

After the stock market debacle in December, Trump got the message than his behavior was at fault. So now he is changing his tune at exactly the wrong moment in the negotiating process. The Chinese are probably not confused at all—they may think Trump is “cracking” and since he can’t get what he wants, they have to offer even less than they were offering before. In other words, erratic behavior is worse than an unyielding position at this last-minute. It’s not the conciliatory aspect at fault, it’s the erratic behavior and obvious lack of coordination or even communication between Trump and Lighthizer, who was blind-sided by the Trump comments.

Those who mismanage a process are doomed to get a lousy outcome.

 

The Chinese media came out with a story, citing the recent comments from a spokesman for China's Foreign Ministry following the reports that the US is pressing China to keep the Yuan stable as part of a trade agreement.

 

Japan's manufacturing activity contracted in February for the first time since 2016, courtesy of shrinking domestic and export orders, the Flash Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) released earlier today showed.

Looking ahead, the yen may come under pressure if the equities pick up a strong bid. As of writing, the S&P 500 futures are flatlined, while the major Asian indices are trading mixed.

Technical speaking, the immediate outlook remains bullish, as both the 5- and 10-day MAs are trending north. More importantly, the pair found support near the 5-day MA of 110.65.

·       The United States and China have started to outline commitments in principle on the stickiest issues in their trade dispute, marking the most significant progress yet toward ending a seven-month trade war, according to sources familiar with the negotiations.

As officials hold high level talks on Thursday and Friday in Washington, they remain far apart on demands made by U.S. President Donald Trump's administration for structural changes to China's economy.

Negotiators are drawing up six memorandums of understanding on structural issues: forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.

The parties also were looking at a 10-item list of ways that China could reduce its trade surplus with the United States, including by buying agricultural produce, energy and goods such as semiconductors, according to two other sources familiar with the talks.

·       The European Central Bank will soon discuss new, multi-year loans to banks, its chief economist said on Wednesday, but he hinted that a new round of credit may not be as generous as a previous facility.

Banks, particularly in Italy and Spain, face a cliff-edge as the ECB’s 739 billion-euro ($839.13 billion) Targeted Long-Term Refinancing Operation approaches repayment dates in 2020-21.

Peter Praet’s comments suggested a new round of TLTRO will be discussed as soon as the ECB’s next meeting, on March 7. But a decision, particularly on the terms of the loans, may have to wait.

“The discussion will come very soon in the Governing Council,” Praet told a conference in Frankfurt. “It doesn’t mean we’ll take decisions ... at that time.”

·       The Chinese media came out with a story, citing the recent comments from a spokesman for China's Foreign Ministry following the reports that the US is pressing China to keep the Yuan stable as part of a trade agreement.

·       China’s central bank is not yet ready to cut benchmark interest rates to spur the slowing economy, despite cooling inflation and a stronger yuan, which have fanned market expectations of such a move, policy sources told Reuters.

But the People’s Bank of China (PBOC) is likely to cut market-based rates and further lower banks’ reserve ratios (RRR) to boost credit growth and reduce firms’ borrowing costs, according to the sources involved in internal policy discussions.

Analysts polled by Reuters expect China’s official growth rate to cool to 6.3 percent in 2019, a 29-year low, and some believe real activity levels are already much weaker than government data suggest.

·       The Bank of Japan’s next move will be to loosen its already super-easy monetary policy, a small but growing contingent of economists say, amid risks of a slowdown and skepticism inflation will hit the central bank’s target.

Most economists polled by Reuters — 29 of 38 — still expect the BOJ’s next step would be to scale back its massive stimulus program.

But nine analysts — up from five in last month’s poll — said the central bank would instead boost stimulus with steps such as buying even more assets to flood the financial system with cash and tweaking the wording in forward guidance.

“If the risk of a recession rises, the BOJ will likely ease further,” said Hiroshi Ugai, chief economist at JPMorgan Securities Japan, one of the nine.

Nearly all economists polled — 33 of 36 — said they disagreed with the BOJ’s insistence that inflation was maintaining momentum toward reaching 2 percent. The latest Reuters poll was taken Feb 7-20.

Many economists who forecast the central bank will scale back stimulus said that will happen sometime in 2020 or later.

Shigeto Nagai, head of Japan economics at Oxford Economics, said the BOJ has already missed a chance to normalize policy, before the sales tax hike, due to rising global uncertainty.

·       Oil prices hovered close to 2019 highs on Thursday, bolstered by OPEC-led supply cuts and U.S. sanctions on Venezuela and Iran, but were prevented from rising further by slowing growth in the global economy.

U.S. West Texas Intermediate (WTI) crude oil futures were at $57.39 per barrel at 0742 GMT, 23 cents, or 0.4 percent, above their last settlement, and close to their 2019 high of $57.55 reached the previous day.

International Brent crude futures were at $67.20 per barrel, 12 cents, or 0.2 percent above their last close and not far off their 2019 peak, hit the day before, of $67.38 per barrel.

Analysts said that a global economic slowdown was preventing prices from surging beyond highs reached this week.

“Slowing economic growth will invariably lead to weakness in fuel consumption thus eroding bullish gains for oil prices,” said Benjamin Lu of brokerage Phillip Futures in Singapore.

Reference: Reuters,CNBC, FX Street