US Dollar Underpowered Against Safe Havens
The greenback fell short against similar safe havens such as the yen and the Swiss franc on an early European Friday.
On the bright side, it overpowered other currencies after news of the president, Donald Trump, announcing a strident escalation in the trade dispute against China.
The Japanese yen managed to topple the dollar on Thursday after the announcement of an additional 10% tariff on $300 billion Chinese imports. Earlier in the morning, the yen was at 106.95 against the US dollar.
The yen also rose to its highest level against the greenback since April 2018.
Against the franc, the US dollar also slumped at 0.9880. Traders have closing carry trades in a broad risk-off move across financial markets.
The US President’s announcement crushed a flimsy trade agreement with China, which was reached ahead of the G20 Summit a month ago.
This represents a worsening of the conflict by way of adding new tariffs effectively to Chinese imports to the US. The risk of tariffs feeding through to elevated prices for consumers in the US is becoming more probable.
Analysts expect that the move will increase the average tariff on Chinese products to 21.5%, previously at 3% in 2017.
The decision from the president came only a day after Federal Reserve Chairman Jerome Powell blamed the trade dispute for being the most significant concern for the US and global economies.
“Ironically the Fed’s easing gives the President the breathing space to now play hardball,” a concerned fellow from Harvard Kennedy School said via Twitter.
Overnight, the US dollar soared against high-yielders as it hit a 10-year high versus the Aussie.
On Thursday, the Fed implemented its highly-anticipated rate cut for the first time in over a decade.
This is during a time when weaker growth is visible, but it indicated that the move would not pave the way to a more aggressive easing in the following months to come.
The greenback also edged higher against the Korean won and kiwi, while it rose 1% against the Chinese yuan.
China’s central bank refused to implement a cut in the official rate.
The euro and the British pound saw moderate damage. However, speculation that Trump may make an announcement regarding trades with the EU set the mood for fears among investors.
On Thursday, the pound fell 0.3% against the US dollar after the Bank of England (BOE) refused to cut rates.
Unanimously, bank members voted to keep the rate steady at 0.75%, although it downgraded its growth forecasts for the two years to follow.
The BOE did not caution regarding the qualms against a “Hard Brexit” scenario. Despite that, it said, “companies expect output, employment and investment to be much lower in a no-deal Brexit.”
The dollar index, which measures the US dollar against a basket of currencies, touched 98.697 overnight, its highest level since 2017. Later on, the greenback pulled back to 98.105 in European trading.
The intensifying trade war portends to overshadow the release of the US labor market data for July.
Analysts expected Nonfarm payroll (NFP) growth to have slowed from 224,000 to 160,000 in June.