Economic projections on the back of the U.S.-China trade negotiation

On the back of the U.S.-China trade negotiation deadlocked, Larry Kudlow, White House economic adviser, told the Fox News that China needs to agree to very strong enforcement provisions for an eventual deal and also said the sticking point was Beijing’s reluctance to put into law changes that had been agreed before.

Kudlow reassured the U.S. tariffs would remain in place while negotiations continue and there is a strong possibility Trump will meet Xi Jinping at the G20 summit in Japan in late June.

Michael Hanson, the head of global macro strategy at TD Securities, told that the U.S. base case is for limited progress and Chinese retaliation. There is a significant risk, he said, for all Chinese imports to be subject to tariffs over the next month or even more.

Hanson made a suggestion the market reaction will ultimately depend on whether the U.S and China continue to negotiate, whether the remaining $325 billion of U.S. imports from China get tariffed, China`s retaliatory action, and what happens to the 232 auto tariffs.

The renminbi was likely to fall between 5-6 % against the dollar in the coming 3 months, Hanson thinks. The offshore Chinese yuan fell to its lowest levels in more than 3 months at 6.88 to a dollar. A dollar was holding at 109.75 yen, down 0.2% on the day.

The euro was steady at $1.1233, while the dollar was little changed against a basket of currencies at 97.302.

Khoon Goh, the head of Asia research at ANZ Research, said if there is a lack of progress in the U.S.-China talks over the coming weeks, Asian currencies will come under further pressure.