The USD climbed in Asia today following President Trump’s announced plans to impose tariffs on the imports of metals from Argentina and Brazil. The announcement came just after the US released data from the Institute of Supply Management (ISM).
However, against the euro and the Japanese yen, the dollar slipped.
It seems the dollar’s fortunes were rattled by Monday’s weaker-than-expected manufacturing reading for the US economy, falling 0.2 points to a below-forecast 48.1. Separate data also showed construction spending fell in October as investments in private projects plummeted.
Disappointing manufacturing data, combined with signs of new fronts in the ongoing trade war, seems to have slightly rattled greenback investors.
A bigger concern perhaps is that the US has proposed tariffs on roughly USD2.4bn on imported goods from major European countries. Moreover, the euro tumbled as new tariffs of up to $2.4 billion of French goods were proposed.
Champagne, handbags, cheese and other products could be hit with up to 100% tariffs.
However, while the readings surprised economists who had recently increased growth forecasts for the fourth quarter, it seems investors didn’t take too much fright at the news of further US tariffs, in addition to the threat of more tariffs on a range of European goods. Moves in the markets were therefore overall quite contained, with volatility remaining low.
Yukio Ishizuki, Daiwa Securities’ foreign-exchange strategist in Tokyo, said:
The weak data forced a lot of people to give up dollar longs and cut losses. This may have run its course, but there’s no reason to chase the dollar’s upside from here. Trade friction remains a lingering threat, which is not good for market sentiment.
Uncertainty over whether the US and China would sign a trade deal before the end of the year remained at the forefront today. Indeed investors continue to focus in on the ongoing trade talks as worries heighten after Trump announced that the signing of two pieces of legislation in the US, that support protesters in Hong Kong, would not make negotiations easier, but that China still wants a deal.
According to a Tweet from the Global Times, a nationalist English-language tabloid in China, a phase one trade deal would require that the US roll back tariffs, with the next round of tariffs due to take effect on December 15th.
According to a note by analysts at Commerzbank:
As long as there is no game-changer in the trade conflict…the market considers Trump twitters of this nature to be just background noise that can simply be ignored. Nonetheless, uncertainty has no doubt risen again as to what will happen in mid-December now that everything seems possible again between the two opponents.
The People’s Bank of China (PBOC) set the reference rate for the yuan – known as the midpoint around which the currency is allowed to trade – at 7.0223, weaker than Monday’s 7.0409.
Meanwhile, an increase in the Tory Party’s lead over the Labour Party helped the cable rally 0.2% against the dollar and the euro.
GBPUSD is currently continuing its movement in the range 1.2820-1.2965, with the sentiment being rather positive. Increased volatility may have been triggered for GBP today as PMI Construction data rose to 45.3 in November, from 44.2 in October, and above market expectations of 44.5.
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