Dollar gains as growing trade tensions lure safe-haven bids

The dollar started the third quarter on a positive note today. ― Reuters pic
The dollar started the third quarter on a positive note today. ― Reuters pic

WASHINGTON, July 2 — The dollar started the third quarter on a positive note today, benefiting from mounting global trade tensions, as investors scooped up the greenback as a safe-haven bet.

“For now, mounting fears about a trade war have supported the dollar, particularly against its higher yielding and riskier rivals,” said Omer Esiner, chief market analyst, at Commonwealth Foreign Exchange in Washington.

Tension is growing ahead of a July 6 deadline when Washington is due to impose US$34 billion (RM138 billion) of tariffs on exports, with two surveys of manufacturing out in the last few days showing a softening in activity, partly due to softness in exports.

Rising trade tensions have hit stock markets from Germany to South Korea and prompted investors to hedge their exposure to relatively high-yielding currencies such as the Australian dollar and the Chinese currency.



Taking note of the rising dollar, BNP Paribas trimmed its end-2018 forecasts for the euro and sterling.

In late morning trade, the dollar index was up 0.4 per cent at 95.044.

The dollar further extended gains after the Institute for Supply Management’s manufacturing index showed a reading of 60.2, higher than the market forecast of 60.2, while US construction spending rose 0.4 per cent in May.

While the ISM report was a positive mark for the dollar, Michael Pearce, senior US economist at Capital Economics said the report provided plenty of anecdotal evidence that tariffs were beginning to disrupt production and were pushing up input prices.

Latest positioning data remains broadly supportive for the dollar and is an extension of themes seen in currency markets in recent days.

Dollar longs edged higher for a second consecutive week, euro longs got trimmed again with net outstanding long positions at their lowest in nearly two months while the Swiss franc enjoyed some safe-haven support.

A rising dollar also translates into tightening financial conditions for broader financial markets given the U..currency’s dominance in global financing and trading markets.

German concerns



The euro also received a setback after German Chancellor Angela Merkel was dealt a fresh blow when her interior minister offered to quit in an escalating row over migration policy.

Today, the euro fell 0.6 per cent to US$1.1609. It racked up its third consecutive monthly loss against the dollar in June.

The dollar extended its gains against the yen to hit a new six-week high of ¥111.06.

The Japanese currency was unmoved by the Bank of Japan’s tankan business sentiment survey, which showed a slight dip in big Japanese manufacturers’ sentiment. — Reuters

Source: The Malay Mail Online





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