January 16, 2020 / 1:27 AM / a month ago

China's yuan strengthens after signing of Phase 1 trade deal

SHANGHAI, Jan 16 (Reuters) - The yuan firmed in offshore markets on Thursday after China and the United States signed a Phase 1 agreement to defuse their 18-month-long trade war.

The partial trade deal signed on Wednesday will roll back some of the tariffs imposed during the dispute and boost Chinese purchases of U.S. products, though most of the levies will remain in place and a number of other sore spots remain unresolved.

The offshore yuan strengthened 0.1% to 6.8855 per dollar.

The onshore currency is likely to be supported when trading resumes at 0130 GMT after China’s central bank set the midpoint fixing for its daily trading band at 6.8807 per dollar, its firmest level since July 26, 2019.

“On sentiment, the deal pushes the dollar down against the yuan. On China increasing imports, it pushes it up. Overall, I think the deal supports further yuan appreciation,” said a trader at Chinese bank in Shanghai.

Mark Williams, chief Asia economist at Capital Economics, said in a note that “the removal of imminent downside risk is a clear positive.”

The deal and the reduced likelihood of further trade flare-ups are likely to offer support for the yuan and Chinese equities, he said, though the consultancy still expects the currency to weaken by year-end.

“Our monetary policy view is the key driver, since today’s deal should be largely priced in,” said Williams.

Reporting by Andrew Galbraith and Winni Zhou; Editing by Kim Coghill

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