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Forex - Yuan Recovers; Dollar Heads Higher as Trade Talks Hit Sterling

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The Chinese yuan benefited from the stronger tone in the country’s equity markets Tuesday, although concerns about the widening coronavirus outbreak have kept the gains capped.

At 03:05 ET (0805 GMT), USD/CNY traded at 6.9935, down 0.4%, pushing back below the 7.0 level after breaking through that barrier Monday for the first time this year.

The country's central bank has tried to mitigate the economic damage caused by the coronavirus by trimming interest rates and injecting 1.2 trillion yuan of liquidity into the markets.

Most expect more measures ahead.

"Chinese authorities have been providing a lot of support for the financial markets. There's a level of assurance that the rout would not be allowed to go on much further than necessary," said Christy Tan, head of markets strategy for Asia at National Australia Bank in Singapore.

Still, the number of coronavirus deaths in China continued to climb, reaching 425 as of the end of Monday, from over 20,000 cases, a mortality rate of barely 2%.

Elsewhere, the US Dollar Index Futures, which tracks the greenback against a basket of other currencies, pushed up 0.2% to 97.767, helped by stronger than expected manufacturing sentiment data late Monday and weakness in sterling.

“The ISM manufacturing index has surged back into positive growth territory. The Phase One trade deal between the US and China has lifted much of the gloom hanging over the sector with businesses responding positively,” said ING, in a research note.

Sterling was weak Tuesday as Prime Minister Boris Johnson and Chief EU Negotiator Michel Barnier laid out opposing visions for the relationship between the two groups post-Brexit.

Fears still exist that the U.K. could end the transition period at the end of this year without a trade deal.

At 03:05 ET (0805 GMT), GBP/USD traded at 1.2957, down 0.3%, near a seven-week low.

Overnight, the Australian dollar rose after the Reserve Bank of Australia decided to hold the official cash rate steady at 0.75%. The decision was largely in line with expectation, but analysts do look for another rate cut in the near future.

At 03:05 ET (0805 GMT), the AUD/USD pair traded 0.4% higher to 0.6717.

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