• Yen higher as markets digest US/China trade war de-escalation
  • US Dollar[1] may rebound as the spotlight turns to FOMC[2] minutes
  • British Pound[3] looks to testimony from BOE officials for direction

The Yen edged up in otherwise quiet Asia Pacific trade, with the G10 FX space settling into digestion mode following yesterday’s fireworks. Commodity-bloc currencies notched up impressive gains as risk appetite firmed after China and the US opted against an all-out trade war[4], at least for now. Not surprisingly the chipper mood weighed on the anti-risk Japanese unit. Today’s upswing seems corrective in that context.

From here, the celebratory mood may give way to a bit of sober reflection. No formal deal between the world’s top-two economies has been stuck, making this a temporary lull in hostilities that may yet crumble. Investors are unlikely to know for sure until formal negotiations run their course, which may take months. In the meantime, the focus may turn to Wednesday’s release of minutes from May’s FOMC meeting[5].

The upsurge in commodity-linked and emerging market currencies translated into broader US Dollar weakness yesterday. If Fed policy speculation returns to the forefront, traders leery of being caught wrong-footed by a hawkish outcome might opt to neutralize exposure, sending the greenback upward. The realization that smoother trade relations allow Chair Powell and company greater room to tighten might help too.

The Bank of Englandis in focus in European hours as Governor Carney leads a group of officials in testimony on the latest

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