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US dollar edges up on latest round of US-China trade tensions

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The US dollar edged up against its peers on Friday, finding support as the latest episode of US-China trade tensions dulled investor risk appetite, with weakness in emerging market currencies also helping lift the greenback.

[TOKYO] The US dollar edged up against its peers on Friday, finding support as the latest episode of US-China trade tensions dulled investor risk appetite, with weakness in emerging market currencies also helping lift the greenback.

The US dollar index against a basket of six major currencies was a shade higher at 94.748. The index had nudged up about 0.15 per cent overnight, ending a four-day losing streak.

The greenback, which tends to attract safe haven bids in times of market turmoil and political tensions, drew its latest swell of support as investors braced for the next round of the U.S.-China trade conflict.

Bloomberg News reported on Thursday that US President Donald Trump is prepared to quickly ramp up a trade war with China and has told aides he is ready to impose tariffs on US$200 billion more in Chinese imports as soon as a public comment period on the plan ends next week.

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"There is an ongoing trend to buy the dollar on the trade friction theme, which has negatively affected emerging market currencies and in turn fuels the dollar's rise," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"The euro has also taken hits, due to the euro zone's perceived exposure to emerging market economies."

The euro was down 0.1 per cent at US$1.1662 after losing about 0.3 per cent overnight when a rise in Italian government bond yields put additional pressure on the currency.

Italian bond yields spiked on Thursday amid concerns that tax cuts and welfare spending proposed by the country's ruling coalition could worsen its debt situation. The Italian/German bond yield spread reached its widest since 2013 as a result.

The Turkish lira weakened for its fifth day, last down 1.5 per cent at 6.7495 per US dollar and creeping back towards the record low of 7.24 per US dollar plumbed on Aug 13.

"It is a bit of stretch to attribute all the euro's woes to turbulence in emerging market currencies like the Turkish lira and the Argentine peso," said Daisuke Karakama, chief market economist at Mizuho Bank.

"That said, the prospect for emerging currencies remain bleak overall and will continue to fan risk aversion. And the euro is not a currency that the market gravitates towards in times of 'risk off'," Mr Karakama added.

Argentina's peso lost nearly one-fifth of its value on Thursday and fell to a record low versus the US dollar.

The peso has slid as investors' faith in President Mauricio's ability to tackle the economic crisis his country faces has evaporated. A huge hike in interest rates from Argentina's central bank did little to arrest the peso's fall.

The South African rand dipped 0.35 per cent to 14.76 per US dollar after retreating more than 2 per cent in overnight trade.

China's yuan was about 0.15 per cent firmer in onshore trade at 6.8344 per US dollar after shedding 0.35 per cent the previous day.

The Japanese yen stood little changed at 111. The yen, another perceived safe haven along with the US dollar and Swiss franc, had advanced 0.6 per cent on Thursday.

The Swiss currency rose for the sixth successive session to reach 0.9680 franc per US dollar, its strongest since mid-April.

The pound stood little changed at US$1.3009. Sterling surged 1.2 per cent this week, touching a four-week peak of US$1.3043 on Thursday, boosted by reduced risk of a no-deal Brexit for Britain.

REUTERS