The dollar was steady against a basket of six other currencies on Friday. It reached a more than 14-month high against the yuan, with markets bugged by worries over the intensifying trade tensions between the United States and China.
China pledged on Thursday that it would retaliate if the US pushed through on its threat to increase tariffs on the Asian nation’s exports. This came after US President Donald Trump demanded his trade officials to consider raising tariffs to 25 percent from 10 percent on $200 billion in Chinese imports into the United States.
However, since the United States imports far more from the Asian country than China from the US, investors believe that a trade war may be more negative for the Chinese economy.
“It seems that the markets are reacting to the US-China trade war as the US is the winner whereas China is the loser,” stated Masafumi Yamamoto, who is chief currency strategist at Mizuho Securities. “The Chinese markets are generally weak. That’s why renminbi’s weakness is leading the dollar’s strength.”
The US dollar index, which gauges the greenback’s strength against a basket of six other major currencies, reached a fresh two-week high of 95.211. It changed hands at 95.139.
The euro, meanwhile, traded near a two-week low at $1.1591.
The dollar was almost flat against the yen, trading at 111.70 yen. The US and Japan are set to meet in Washington on August 9 to conduct their first bilateral trade talks.
“The US is looking to achieve some kind of results (in its trade conflict) with China to start off with,” stated Yukio Ishizuki, who is the chief currency strategist at Daiwa Securities. “I think one purpose of the trade consultations between the US and Japan is to find a common ground vis-à-vis China.”
The Australian dollar, which is considered as a proxy for Chinese growth because of Australia’s export-dependent economy, was also under pressure. The US-China trade spat has overwhelmed the upbeat retail sales data at home.
The Aussie traded at $0.7370, which is a touch above a two-week low of $0.7355 hit during the previous day.
Meanwhile, the pound stayed vulnerable even after the Bank of England on Thursday decided to raise its policy interest rate from 0.5 to 0.75 percent after a unanimous decision of its nine-member policy board.
The British pound on Friday traded at $1.3020, rising a trifle from a two-week low of $1.3006 reached earlier in the day.
It had slipped as much as 0.8 percent on Thursday in the wake of the BoE’s move to hike interest rates.
Bank of England Governor Mark Carney stated that the monetary policy needed to “walk not run” while also stressing worries about the risks of a cliff-edged Brexit, which could result to higher tariffs and other tight rules on the border that could hurt the British economy, according to Mizuho’s Yamamoto.
“These are the things traders have on their mind so they cannot fully follow the hawkish signs of the Bank of England,” he said.