Mexico's peso rallied against the dollar in response to news that the US had dropped threatened tariffs on imports from the country

Hong Kong (AFP) - Asian markets rose Monday and the Mexican peso rallied more than two percent after Donald Trump dropped threatened tariffs against Mexico, while weak US jobs data fanned expectations the Federal Reserve will cut interest rates next month.

Speculation about a cut in borrowing costs saw the dollar retreat against most high-yielding currencies, although the pound remains subdued owing to Brexit uncertainty.

Traders breathed a sigh of relief the North American neighbours reached a last-minute deal Friday, averting the imposition of five percent levies on Mexican imports and opening up of another front in Trump’s global trade battle.

Trump had warned of the levies if Mexico did not meet his demands regarding immigration from Central America.

However, Neil Wilson, chief market analyst at, said: “Whilst this is positive for risk assets, one should be cautious that this may only embolden Mr Trump to use tariffs as a policy tool for the pursuit of non-economic interests.

“As previously suggested, the EU could be next – maybe to get the 2 percent defence spending target.”

Observers also pointed out that while the agreement was good news, the stand-off between China and the United States remains unresolved, with eyes on a possible meeting between Trump and Xi Jinping at the G20 summit in Japan this month.

“The focus will now shift back to the G20 and China,” strategists at TD Securities including Richard Kelly wrote in a note. “Despite the positive result with Mexico, the US-China trade dispute is a different creature, and tensions remain high.”

At the weekend, finance ministers of the G20 issued a post-meeting communique saying “growth remains low and risks remain tilted to the downside”.

It added that “trade and geopolitical tensions have intensified” but they “stood ready to take further action” if it is needed.

- Fed cut ‘on the table’ -

Still, regional markets were well up Monday with Hong Kong jumping 2.3 percent and Shanghai 0.9 percent higher, with investors cheered by better-than-forecast Chinese exports data.

Tokyo ended 2.2 percent higher, Singapore climbed 0.9 percent, Seoul added 1.3 percent and Taipei rallied 1.5 percent with Jakarta 1.4 percent higher. Wellington was slightly down and Sydney was closed for a public holiday.

In early trade London rose 0.5 percent and Paris added 0.6 percent. Frankfurt was closed for a holiday.

The dollar was on the back foot against higher-yielding currencies after the Labor Department on Friday said the economy created less than half the forecast amount of jobs last month, while wage growth stagnated, indicating the world’s top economy was slowing down.

“The miss by the US jobs report could force the hand of the Fed into making an interest rate cut,” said OANDA senior market analyst Alfonso Esparza.

“A summer cut could be on the table, unless US inflation and retail sales can turn the tide set in motion by the weak May jobs report.”

However, a pick-up in optimism over the Mexican trade deal helped the dollar up against the safe-haven yen.

Oil prices extended Friday’s sharp gains, which came after Saudi Arabia and Russia said they would continue with their output caps, while the weaker dollar also provided support to the commodity.

However, analysts warned that the China-US trade war and concerns about weakening demand would keep prices under pressure.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: UP 1.2 percent at 21,134.42 (close)

Hong Kong - Hang Seng: UP 2.3 percent at 27,578.64 (close)

Shanghai - Composite: UP 0.9 percent at 2,852.13 (close)

London - FTSE 100: UP 0.5 percent at 7,370.24

Euro/dollar: DOWN at $1.1300 from $1.1335 at 2030 GMT Friday

Pound/dollar: DOWN at $1.2708 from $1.2736

Dollar/yen: UP at 108.66 yen from 108.15 yen

Dollar/Mexican peso: DOWN at 19.1800 from 19.7889

Oil - West Texas Intermediate: UP 22 cents at $54.21 per barrel

Oil - Brent Crude: UP 17 cents at $63.46 per barrel

New York - Dow: UP 1.0 percent at 25,983.94 (close)