- USD/JPY drops as White House adviser says declares trade deal between Trump, China is ‘over’.
- Renewed trade tensions would only deepen the economic recession.
- Investors shun risk and buy safe havens like gold and Japanese yen.
The bid tone around the anti-risk Japanese yen strengthened, pushing USD/JPY lower from 106.95 to 106.74 after White House adviser Peter Navarro told Fox News that President Trump has decided to terminate the China trade deal in light of the growing evidence that the coronavirus originated in Wuhan laboratory.
“It’s over, they came here on January 15th to sign that trade deal, and that was a full two months after they knew the virus was out and about,” Navarro said.
The termination of the trade deal could pave the way for another round of trade war between the world’s two biggest economies and prolong the coronavirus-led recession in the global economy.
Hence, it’s perhaps not surprising that investors are shunning risk and taking shelter under traditional safe havens like Japanese yen. The dollar, too, is gaining ground against high beta currencies like the Australian dollar and will likely put in a positive performance against the emerging market currencies.
So far, markets haven’t received any confirmation from the White House. The risk-off may worsen, causing bigger declines in USD/JPY once the official communique is published. At press time, the pair is trading at 106.83, representing a 0.10% decline on the day.
The US and China signed a long-awaited “phase one” trade agreement at the White House in January, ending an 18-month long conflict. Hence, most economists were optimistic about global growth prospects in 2020. However, things took turn for the worse in March, as coronavirus pandemic forced nations to shut down their respective economies. The Covid-19 fears are still lingering with German and the US witnessing the second wave of the virus outbreak.