· China’s yuan and the Australian dollar regained some poise on Tuesday after upbeat comments from U.S. President Donald Trump suggested trade talks with Beijing could yet make headway.
The Chinese currency sank to a 2019 low of 6.92 on Monday in response to Washington and Beijing raising tariffs on the other’s goods.
But the yuan managed to break a six-day losing streak on Tuesday and rose 0.25% as broader sentiment stabilised after Trump said he expected Sino-U.S. trade negotiations to be successful.
The Australian dollar managed to firm a tenth of a percent to $0.6952 after brushing its lowest since early January earlier in the session.
The Aussie is often seen as a proxy for Chinese growth because of Australia’s export-reliant economy and China being the main destination for its commodities.
The euro rose 0.15% to $1.1238.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 97.526 after rising from levels below 97.4 yesterday.
· U.S. government debt prices were lower on Tuesday after President Trump said that a breakthrough with China, if it happens, will be announced in three to four weeks.
At around 4:07 p.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was higher at around 2.412%, while the yield on the 30-year Treasury bond was also higher at around 2.852%.
· President Donald Trump predicted Tuesday that China’s next move in the trade war will be a rate cut, and he pushed the Federal Reserve to follow suit in what he said would lead to a clear victory for the U.S.
In a tweet that amounted to the latest salvo in the tariff dispute between the two nations, the president ramped up his pressure on the Fed to ease monetary policy.
He said that should the central bank meet a China rate cut with one of its own, that would be “game over, we win!”
· U.S. Treasury Secretary Steven Mnuchin will plan for another trade meeting in China at some point soon, a Treasury spokesman said on Tuesday, adding to President Donald Trump’s earlier statements that U.S. dialogue with Beijing was continuing.
· The U.S. Federal Reserve does not need to cut interest rates as part of its strategy to keep inflation close to its 2 percent target, a Fed policymaker said on Tuesday.
Several U.S. central bankers have expressed concern over persistently below-target rates of inflation and argued that interest rate cuts may be necessary.
But Kansas City Federal Reserve Bank President Esther George, a voting member this year on the Fed’s rate-setting committee, described the undershoot as minor, especially given low levels of unemployment in the United States.
She said she saw little “little reason to be concerned” about current low rates of inflation.
· In a prepared speech delivered on Monday, Fed Vice Chair Richard Clarida said that the economy was "at or close to" the Fed's dual mandate, maximum employment and price stability, and reiterated that the inflation was running close to their objective of 2%.
· A new round of punitive duties Mexico has prepared for U.S. products to pressure President Donald Trump into lifting his metals tariffs could be ready in the next two to three weeks, a senior official said on Tuesday.
Mexico’s push to have the metals tariffs lifted has become bound up with its efforts to secure U.S. ratification of a new trade pact known as the United States-Mexico-Canada Agreement (USMCA), intended to replace the 25-year-old North American Free Trade Agreement.
U.S. Republican lawmakers have already signaled that Trump will need to drop his metals tariffs to pass USMCA.
· British Prime Minister Theresa May will launch another push next month to approve Britain’s exit from the European Union before the summer break, setting a new deadline for her Brexit plan and a potential timetable for her own departure.
In a change of tack, her spokesman said she was now planning to put forward a Withdrawal Agreement Bill, which implements the terms of Britain’s departure, in the week beginning June 3 to try to secure Brexit before lawmakers go on summer holiday.
· U.S. Secretary of State Mike Pompeo told Russia on Tuesday that Washington would brook no interference in the 2020 U.S. presidential election and wanted Moscow to take action to show there would be no repeat of its suspected 2016 meddling.
President Vladimir Putin, who met Pompeo in the Russian Black Sea resort of Sochi, pushed back, telling him that Russia never interfered in U.S. elections and that a report by U.S. Special Counsel Robert Mueller, which he praised as being “objective overall”, had found no evidence of collusion with President Donald Trump’s 2016 campaign.
Russian President Vladimir Putin is open to a new meeting with U.S. President Donald Trump if Moscow receives a formal proposal for such an encounter, a Kremlin aide said on Tuesday after Putin held talks with U.S. Secretary of state Mike Pompeo.
President Vladimir Putin told U.S. Secretary of State Mike Pompeo on Tuesday that he sensed that U.S. President Donald Trump genuinely wanted to repair battered relations between Russia and the United States.
Trump on Monday said he planned to meet Putin on the sidelines of a meeting of G20 nations in Japan next month, but the Kremlin said it had not yet received any formal request from Washington for such a meeting.
· President Donald Trump on Tuesday denied a New York Times report that U.S. officials were discussing a military plan to send up to 120,000 troops to the Middle East to counter any attack or nuclear weapons acceleration by Iran.
“I think it’s fake news, OK? Now, would I do that? Absolutely. But we have not planned for that. Hopefully we’re not going to have to plan for that. And if we did that, we’d send a hell of a lot more troops than that,” Trump told reporters at the White House.
The Times reported that Acting Defense Secretary Patrick Shanahan presented an updated plan last week in a meeting of top national security aides that envisions sending as many as 120,000 American troops to the region if Iran attacks U.S. forces or accelerates work on its nuclear weapons.
· The U.S. military said on Tuesday that there were possible imminent threats to U.S. troops in Iraq, who were now at a high level of alert, and underscored concerns about Iranian-backed forces in the region.
· Oil was mixed on Tuesday as tensions in the Gulf appeared to stop short of a military showdown and both sides in the U.S.-China trade talks sounded conciliatory notes, signalling that a breakdown might be avoided.
Brent crude futures were at $70.40 a barrel at 0755 GMT, up 38 cents or 0.24 percent. Brent ended the previous session down 0.6 percent.
U.S. West Texas Intermediate (WTI) crude futures were at $60.92 per barrel, down 12 cents or 0.2 percent. WTI closed down 1 percent on Monday.
The negotiations between the United States and China appeared headed towards success last week but have largely unravelled over U.S. accusations that Beijing sought vast, last-minute changes.
· China on Monday ignored a warning from U.S. President Donald Trump and moved to impose higher tariffs on a range of U.S. goods including frozen vegetables and liquefied natural gas.
But the Chinese government’s top diplomat, State Councillor Wang Yi, indicated on Monday that Beijing hoped for a compromise: “Both countries’ negotiating teams have the ability and wisdom to resolve each other’s reasonable demands.”
Trump on Monday said he expected to speak to Chinese President Xi Jinping at a G20 summit in late June and have “probably a very fruitful meeting”.
Reference: CNBC, Reuters, FX Street
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