The dollar inched up against its peers on Friday, finding support as the latest round of US-China trade dispute dampened investor risk appetite, with weakness in the emerging market currencies also helping support the greenback.
The US dollar index, which tracks the greenback’s strength against a basket of six other major currencies, was a tad higher at 94.748. The index had nudged higher about 0.15 percent overnight, finishing a four-day losing streak.
The greenback, which usually attracts safe haven bets in times of market turmoil and political struggle, drew its most recent swell of support as investors braced for the next round of the US-China trade fiasco.
According to a report, US President Donald Trump is prepared to quickly ramp up a trade war with China and has told aides that he is prepared to impose tariffs on $200 billion more in Chinese imports as soon as a public comment period on the plan ends next week.
“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,” stated Junichi Ishikawa, who is the 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 lower 0.1 percent at $1.1662 after losing about 0.3 percent overnight when a rise in Italian government bond yields placed additional pressure on the currency.
Italian bond yield jumped on Thursday amid worries that tax cuts and welfare spending proposed by the country’s ruling coalition could worsen its debt situation. The Italian/German bond yield spread hit its widest since 2013 as a result.
The Turkish lira slumped for the fifth day, last lower 1.5 percent at 6.7495 per dollar and creeping back toward the record low of 7.24 per dollar fetched on August 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,” stated Daisuke Karakama, who is 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 gravitate toward in time of ‘risk off’,” Karakama explained.
Argentina’s peso dropped nearly one-fifth of its value on Thursday and fell to a record low versus the dollar.
The peso has dropped as investors’ faith in President Mauricio’s ability to resolve the country’s economic crisis has disappeared. A large spike in interest rates from Argentina’s central bank did little to stop the peso’s freefall.
The South African rand slipped 0.35 percent to 14.76 per dollar after retreating over 2 percent in overnight trade.
China’s yuan was about 0.15 percent firmer in onshore trade at 6.8344 per dollar after losing 0.35 percent during the previous day.
Meanwhile, the Japanese yen stood slightly changed at 111.000. The yen, another considered safe haven along with the dollar and Swiss franc, had gained 0.6 percent on Thursday.