Euro, yuan lead surge after U.S.-China trade war truce

The euro and Australian dollar led the rally against the U.S. dollar on Monday after Washington and Beijing’s agreement for a ceasefire in their trade war encouraged investors to sell the greenback and buy into riskier assets.

Emerging market currencies also surged higher, with China’s offshore yuan gaining more than one percent.

U.S. President Donald Trump and China’s President Xi Jinping have agreed a 90-day cease-fire in their trade dispute during which they will try to bridge their differences.

Currencies hit hard during the trade dispute amid fears of the potential damage to the global economy recovered sharply. The Australian dollar rocketed 1 percent to $0.7386 AUD=.

China is the biggest buyer of Australian exports and the worry has been that any hit to Chinese demand would hurt international trade.

The Canadian dollar rose 0.9 percent to C$1.3162 CAD=, while the Norwegian crown added 1 percent NOK= helped by the improved market sentiment and soaring oil prices.

The euro also capitalized on the dollar weakness, adding more than half a percent to $1.1379 EUR=. That takes the euro further away from its 2018 low hit last month of $1.1216.

The dollar index, which measures the greenback against a basket of major peers, fell 0.6 percent to a day’s low of 96.719 .DXY.

Trade tensions have been one of the biggest drivers of dollar strength in 2018.

The offshore yuan CNH=EBS gained more than one percent to 6.8790, although analysts said that with China's economy on less steady ground than a year ago relief for the yuan may be temporary.

Other emerging market currencies jumped. The South African rand ZAR= added 2 percent, while the Mexican peso MXN= was 1.8 percent higher. The Russian rouble RUB= added 1.1 percent.

Some analysts said many issues still have to be resolved for risk sentiment to remain supported in the medium term, with both China and the United States still on different pages when it came to trade.

Investors will also be focusing on U.S. monetary policy this week. The Federal Reserve is expected to raise interest rates by 25 basis points later in December but question marks remain about how many more hikes are due in the current cycle.

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