Yen edges up on U.S.-Mexico trade woes; ECB in focus

June 6, 2019

By Shinichi Saoshiro

TOKYO (Reuters) – The yen edged up versus the dollar on Thursday as sentiment soured over U.S.-Mexico talks on tariffs and immigration, fuelling broader concerns about global trade hostilities and raising appetite for safe-haven currencies.

Mexican officials met with their U.S. counterparts for negotiations in Washington on Wednesday aimed at averting U.S. tariffs on Mexican goods next week, although there were no immediate signs of a rapprochement.

In a move that could deepen Washington’s trade conflict with its partners, U.S. President Donald Trump unexpectedly told Mexico last week to take a harder line on curbing illegal immigration or face 5% tariffs on all its exports to the United States.

The dollar was down 0.15% at 108.300 yen, handing back a bulk of the gains made overnight.

The greenback was supported earlier on Wednesday on initial optimism toward U.S.-Mexico trade talks, and an Institute for Supply Management (ISM) survey showing that U.S. services sector activity expanded at a brisk pace in May.

“The dollar had risen against the yen earlier on speculation that the U.S.-Mexico negotiations would produce positive results, but headed back down on headlines saying an agreement had not been reached,” said Shinichiro Kadota, senior strategist at Barclays in Tokyo.

“The focal point today will be on the ECB and how dovish President Draghi could be.”

The European Central Bank makes its monetary policy decision later on Thursday. The central bank will try to give the ailing euro zone a boost and may even set the stage for more action later this year as an escalating global trade war unravels the benefits of years of monetary stimulus.

ECB President Mario Draghi is expected to maintain guidance about the possibility of more stimulus.

The euro was 0.1% higher at $1.1230 after retreating 0.3% on Wednesday.

The Mexican peso, already saddled with trade concerns, took a hit after ratings after credit ratings agency Fitch downgraded its sovereign debt rating on Wednesday to BBB, nearing junk status, while Moody’s changed the country’s outlook to negative from stable.

The Mexican peso was down 0.85% at 19.7521 per dollar, edging back toward a five-month low of 19.8800 brushed on Monday.

The dollar index against a basket of six major currencies was little changed at 97.300 after edging up 0.25% the previous day, pulling away from a two-month trough of 96.749.

The dollar index had stooped to a two-month low as U.S. yields declined sharply this week on investor risk aversion and heightened prospects of the Federal Reserve cutting interest rates.

(Reporting by Shinichi Saoshiro; Editing by Sam Holmes)

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