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The Dollar rallied against the yen on Wednesday after recovering against the safe-haven Japanese currency as U.S. equities rebounded from a steep break fueled by an escalating trade spat between the United States and China.
The USD/JPY settled at 106.769, up 0.171 or +0.16%.
The yen had rallied earlier in the session as stocks in Europe and the U.S. initially tumbled on Wednesday in response to China’s swift decision to impose retaliatory tariffs on U.S. exports.
Throughout the trading session, U.S. stocks found support before turning higher late in the day. The intraday rally in equities helped drive up demand for the U.S. Dollar while encouraging investors to sell the safe haven Yen.
Worries about a potential trade war were calmed somewhat after President Donald Trump’s economic adviser Larry Kudlow said the administration was in “negotiation” with China, and not engaged in a trade war.
Although China’s decision to impose tariffs on 106 U.S. products grabbed the headlines early Wednesday, the U.S. did release several economic reports.
ADP and Moody’s Analytics reported that companies kept up the hiring pace in March, adding 241,000 positions as employment in construction and manufacturing surged. Traders were looking for the report to show that private payrolls grew by 205,000. The March report was also revised higher to 246,000, up from 244,000.
Another report showed growth in non-manufacturing economic activity continued to slow in March, after declining slightly in the prior month.
The Institute of Supply Management’s measure of non-manufacturing firms ticked down to 58.8, slightly lower than the 59 expected by economists. Non-manufacturing economic activity hit 59.5 in February.
Additionally, the Commerce Department said on Tuesday that factory goods orders increased 1.2 percent, nearly erasing January’s revised 1.3 percent decline. Economists were looking for a 1.7 percent rise in February after a previously reported 1.4 percent drop in January.
Finally, Cleveland Fed President Loretta Mester said the U.S. Federal Reserve makes better policy decisions when a more diverse group is at the table helping it avoid “group-think”. Mester did not comment on U.S. monetary policy in prepared remarks on diversity in the economics profession.
Forecast
The Dollar/Yen is trading better early Thursday, mostly due to the relative calm in the global equity markets. Asian stocks rose on Thursday, following Wall Street’s rebound after U.S. stocks initially dropped on additional tariffs unveiled by China.
Word that negotiation between the U.S. and China is currently providing the support for the dollar. Since no date has been set for the proposed tariffs put forward by China or the U.S., we could continue to see volatility in the markets, however, it also likely means negotiation is still firmly on the table.