TOKYO (Reuters) – The yen plumbed eight-month lows while China’s yuan climbed to its highest level since July on Tuesday, as the U.S. Treasury Department reversed its decision in August to designate China as a currency manipulator.
FILE PHOTO: South Korean won, Chinese yuan and Japanese yen notes are seen on U.S. 100 dollar notes in this file photo illustration shot December 15, 2015. REUTERS/Kim Hong-Ji//Illustration/Files/File Photo
The announcement came as Chinese Vice Premier Liu He arrived in Washington ahead of Wednesday’s signing with U.S. President Donald Trump of a preliminary trade agreement aimed at easing tensions between the two countries.
“Washington’s decision to lift its designation of currency manipulator on China has added to the positive mood that has been already in place ahead of the signing of the trade deal,” said Minori Uchida, chief currency strategist at MUFG Bank.
People familiar with the negotiations said that although the manipulator designation had no real consequences for Beijing, its removal was an important symbol of goodwill for Chinese officials.
The dollar rose as much as 0.25% to 110.22 yen, its highest since late May against the safe-haven Japanese currency. It last stood at 110.04 yen, capped at a technical resistance from Bollinger band around 110.22.
Uchida said the dollar/yen is likely to face an uphill battle beyond the 110 yen mark, because the dollar is already expensive relative to the U.S.-Japan yield gap which it tracks fairly closely.
“The main driver of the dollar/yen is the yield gap. Last year, when the dollar was above 110 yen, the yield gap was