The dollar trod water early on Friday as investors awaited a crucial meeting between the leaders of the US and China at a Group of 20 summit over the weekend for any signs of progress to end their heated trade war.

The mood improved the previous day after the South China Morning Post said Washington and Beijing were laying out an agreement that would help avert the next round of tariffs on an additional $300 billion of Chinese imports.

Negotiations between the world's two largest economies have been fraught, so traders and analysts caution that a resolution at the G20 summit is far from certain. Yet, markets seem to cling on to hopes of progress in a meeting between US President Donald Trump and Chinese President Xi Jinping at the G20 in the western Japanese city of Osaka.

That was reflected in an easing of risk aversion as US stocks gained and Treasury yields shifted lower. Trump is set to hold the much-anticipated trade talks with Xi at 11:30 a.m. (0230 GMT) on Saturday.

“Market moves show there is less concern about the US-China meeting, but the results of the meeting have to match these expectations for the dollar and risk assets to go higher,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities. “Anything less than that will lead to a big reaction in the opposite direction.”

The dollar traded at 107.73 yen, little changed on the day but on course for a 0.4 per cent gain this week as the greenback mounted a recovery from a five-month low of 106.77 yen reached on Tuesday.

The dollar index, which measures the US currency against six of its peers, was at 96.195, down 0.3 per cent on the week.

The US and China have already imposed tariffs of up to 25 per cent on hundreds of billions of dollars of each other's goods in a dispute about China's trade practices that has lasted nearly a year.

The drawn out trade war has slowed global growth and pushed many central banks toward cutting interest rates to support their economies. Any sign the trade war will come to an end would be a significant boost for the global economic outlook.

The euro last traded at $1.1370, unchanged on the week. However, analysts say sentiment on the single currency remains weak due to speculation the European Central Bank will ease monetary policy.

Any weakness in June inflation data for the euro zone, set for release later on Friday, would support the argument for monetary easing. In May, core inflation decelerated sharply.

Sterling was unchanged at $1.2670, on course for a 0.6 per cent weekly decline on uncertainty about who will be Britain's next Prime Minister and on worries about whether the nation would be able to avoid a no-deal, chaotic exit from the European Union.

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