Dollar Weakens on Looming Trade War Threats
The U.S. dollar index, which measures the dollar against a basket of six major Forex partners, is trading near a one month low. It was on course for its largest weekly drop last week, over the last five weeks, as trades worry more and more over escalating trade war tensions will be bad for the global economy.
According to an article in Reuters News , China is urging the United States to “pull back from the brink“. President Donald Trump’s is planning to impose tariffs of up to $60 billion in Chinese goods. This is moving the world’s two largest economies closer to an all-out trade war.
The U.S. dollar index, was down 0.48 percent at 89.43 on Friday. For the week, the dollar index shed about 0.7 percent.
Chuck Tomes, senior investment analyst at Manulife Asset Management in Boston, says that,
People seem to be being just a little cautious with so many headlines coming out, and wondering what the next headline could be and how the market is going to react to it
A Shift in Global Policy causes Uncertainty
Tomes also said that
expectations about shifting policy at global central banks was also injecting an element of uncertainty into currency markets.
Trump’s decision to replace H.R. McMaster as national security adviser (NSA) with John Bolton, a war hawk, who has urges using military force against North Korea and Iran, will also impact investor sentiment in the global financial markets.
In other news, impacting the dollar, The VIX, a gauge of stress in U.S. markets has climbed to its highest level in nearly nine years. U.S. investors are concerned about growing costs for banks and corporations to borrow dollars as further interest rate increases from the Federal Reserve are in sight.
Looking at the gap between the London three month interbank offered rate and the three month overnight index swap expanded. It grew by 58 basis points. This is its widest gap since May 2009.
During afternoon trade hours, in Europe, the safe haven currency, the Japanese yen, which tends to receive an influx of capitol during periods of market turbulence and economic uncertainty, rose to a 16 month high of 104.73 yen against the dollar. This was up 0.5 percent.
The Dollar falls against Forex Safe Haven Currencies
The almighty buck also fell against the Swiss franc. It was down about 0.28 percent. The Swiss franc is another currency bought during times of global unrest.
The GBP/USD Forex market was up 0.35 percent on Friday. According to Reuters News one of the “>policy makers with the Bank of England, Gertjan Vlieghe, said that interest rates will probably need to rise once or and twice a year over the next few years. These comments increase investor expectations that the Bank of England will hike its short term lending rate in May.
One of the leading global commodity currencies, the Canadian dollar was also up against the dollar. This was thanks to a rise in oil prices and better than expected inflation data out of Canada. The Canadian central bank is also seen as on the path of an interest rate hike in the coming months