Dollar rally resumes as US-China tensions escalate

London

THE dollar strengthened on Monday, including against the euro and the Swiss franc, as investors focused on fiscal stimulus in the United States and US-China tensions ahead of key trade talks on Aug 15.

The dollar index is recovering from a losing streak which saw it lose 4 per cent in July. It picked up on Friday after jobs data calmed some fears about the US labour market but still weakened on the week, for the seventh in a row.

After talks in Washington over the next round of fiscal stimulus broke down, US President Donald Trump signed executive orders on Saturday, partially restoring enhanced unemployment payments to tens of millions of jobless Americans.

The dollar index held steady in the Asian session but rose in early London trading on Monday, and was up 1 per cent at 93.532 at 1008 GMT.

"A little stimulus is simply better than none at all," wrote Commerzbank analyst Thu Lan Nguyen. "At least that is how the market seems to see it, which is why the US dollar is trading moderately stronger.

The dollar's strength at the end of last week was also due to escalating tensions between the US and China, with the US imposing sanctions on top Hong Kong and Chinese officials.

This continued to drive investors towards the safe-haven dollar on Monday. China imposed sanctions on 11 US citizens, including legislators.

Prominent democracy activist, Hong Kong media tycoon Jimmy Lai, was arrested on Monday under China's new national security law in the territory, while US health chief Alex Azar visited Taiwan on Sunday - a trip condemned by China, which claims the island as its own.

Senior US and Chinese officials will meet via teleconference on Saturday to review the implementation of their Phase 1 trade deal and likely air mutual grievances.

The euro was down 0.2 per cent versus the dollar, at US$1.17605. The Swiss franc fell versus the dollar, down 0.4 per cent at 0.9159. Euro-franc was up 0.2 per cent at 1.0773.

Overnight data showed China's industrial activity picked up in July, boosting hopes for an economic recovery and driving early gains in European stocks.

The New Zealand dollar was down 0.2 per cent versus the dollar, at 0.6585.

The Australian dollar was subdued, down 0.1 per cent versus the US dollar at 0.71525 after the country recorded a record-high daily increase in Covid-19 deaths on Monday. REUTERS