When the Phase 1 trade deal was struck on December 13, US officials said China had agreed to buy $200 billion in additional USA farm products, manufactured goods, energy and services over the next two years, compared to the baseline of 2017.
The central parity rate strengthened 309 pips to 6.8954 against the USA dollar, which was its strongest since August 1 past year, according to the China Foreign Exchange Trade System.
A formal announcement could come as early as today or before Wednesday when the phase one deal is set to be signed.
The pledge to boost US farm imports by over $30 billion over two years is "shocking" since that increment is more than the value of farm products it has purchased from the U.S.in a single year, said a China-based grains trader. Some of that data have provided support for Treasury's view that the People's Bank of China engages in competitive devaluations of its currency, the people said. It forced the United States to enter into negotiations to resolve the currency problem that could eventually lead to the imposition of economic sanctions such as higher rates for Chinese goods - something that the Trump government already did in its tit-for-tat trade war with China.
In other United States news, the nation's federal budget deficit rose above $US1 trillion a year ago for the first time since 2012, according to the Treasury Department.
Even while removing China from its currency black list, the Treasury Department does name China as one of 10 countries it says require placement on a watch list that will mean their currency practices will be closely monitored.
China's Foreign Ministry yesterday said it had "never been a currency manipulator", and the USA decision was "in line with the facts". But tensions eased after the Asian country allowed the yuan to rise above the seven-to-one exchange rate, laying the groundwork for an October tariff cease-fire. Treasury said the new trade pact addresses currency issues.
He also said the trade tensions had "put some pressure on China's foreign trade and firms that largely trade with the US".
"China is a currency manipulator-that is a fact".
But Uchida also 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 US-Japan yield gap which it tracks fairly closely. "China Phase 1 agreement is, on balance, favorable for global growth", said Joseph Capurso, an FX strategist at CBA.
In a further sign of de-escalation, Washington on Monday removed the currency manipulator label it imposed on China in the summer.
"Low inflation with solid enough growth outside pockets of weakness like manufacturing, will keep carry bid, with euros the favoured financing currency", he added.
The Treasury Department is required to report to Congress twice a year in April and October on whether any countries are manipulating their currencies to gain unfair trade advantages against usa businesses and workers. Mnuchin instead relied on a 1988 trade law that has a looser definition of currency manipulation to justify the claim. Mnuchin had resisted using the label in the previous five reports he released.
"Provided the deal inks a commitment from China to increase agricultural products and outlines a dependable enforcement mechanism, the market will go merrily along the way", said AxiTrader's Stephen Innes. "Unfortunately, President Trump would rather cave to President Xi (Jinping) than stay tough on China".
Bloomberg News reported earlier Monday that the Treasury would lift the designation on China, news that sent the yuan to a six-month high.