Currencies: Dollar punches higher amid renewed Trump tariff angst

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The U.S. dollar strengthened broadly against most of its major rivals Wednesday following fresh consternation over President Donald Trump’s clashes with major trading partners and allies across the globe.

The U.S. late Tuesday said it would assess 10% tariffs on a further $200 billion in Chinese goods. The move is seen as exacerbating tensions with Beijing and sending a message to other trading partners that the U.S. won’t back down in a trade fight. A final decision on the products to be hit with the new tariffs is expected after a consultation period in late August, but the latest move further highlights Trump’s protectionist trade posture that has rattled global markets and driven investors to the perceived safety of U.S. dollar.

The buck, as measured by the ICE Dollar Index DXY, +0.61% which gauges the U.S. unit against six currencies, climbed by 0.6% to 94.728, with investors reacting after a reading of inflation was released Wednesday morning and after a report by Reuters suggested that policy makers at the European Central Bank are mixed about the timing of a possible rate-hike next year.

Producer-prices for June showed that the wholesale cost of goods and services rose at the highest yearly rate in almost seven years, reflecting broad inflationary pressures in a fast-growing U.S. economy. The producer-price index increased 0.3% on the month. Separately, wholesale inventories rose 0.6% in May.

Still, the U.S. monetary unit has drawn more haven-like demand amid the trade-war strife, compared against currencies viewed as traditional safety plays, including the Japanese yen and the Swiss franc.

“The market still sees the U.S. in the position of power, given where the U.S. is with its economic cycle and where the [Federal Reserve] is” with interest-rate hikes, said Omer Esiner, chief market strategist for Commonwealth FX.

Investors see the dollar as “probably better positioned to withstand sustained disruptions to global trade,” Esiner said.

Specifically, the dollar strengthened against Japan’s yen, viewed as a haven in periods of economic uncertainty. The U.S. currency bought ¥111.99 Japanese yen USDJPY, -0.02%  up firmly from around ¥111.00 late Tuesday in New York.

Another currency viewed as a haven, the Swiss franc pulled back, with the dollar buying 0.9958 Swiss franc USDCHF, -0.0502% compared with 0.9919 in the previous session, with the buck gaining 0.4%.

The greenback rose against both the onshore and offshore yuan, the latter of which trades more freely outside of China. The dollar USDCNY, -0.0090% jumped 0.8% at 6.6809 yuan in onshore trading, compared with 6.6317 late Tuesday. The offshore currency USDCNH, -0.0089% was quoted at 6.7235 yuan, leaving the dollar up also around 1.1% and near its highest levels since 2017 against the Asian currencies.

Fawad Razaqzada, market analyst at Forex.com, said a full-fledged trade war may force the Fed to lift interest rates at a faster pace than it would prefer to combat rising prices and inflation. “Global stock index futures and the yuan slumped, while the U.S. dollar appreciated on assumption that the Federal Reserve will have to raise interest rates more aggressively to counter the increase in the price of goods and services in the U.S. as a result of the tariffs,” he wrote in Wednesday note.

Meanwhile, Canada’s loonie lost altitude against the U.S. dollar after the country’s central bank lifted key interest rates, as had been widely expected. Policy makers cited upbeat domestic economic data despite worries on trade and stalled negotiations of the North American Free Trade Agreement with trading allies Mexico and the U.S.

The loonie had been gaining against the buck immediately after the Bank of Canada hiked interest rates to 1.5% from 1.25% but pulled back as the BOC emphasized a gradual approach to future monetary tightening, citing tariff-related concerns. “While investment and trade are projected to expand, they are being restrained by the U.S. tariffs recently imposed on Canadian steel and aluminum imports and by uncertainty around trade policies.” the BOC said in a statement Wednesday.

One U.S. dollar last bought C$1.3212 of the Canadian currency USDCAD, +0.0378%  on Wednesday, from C$1.3114 late Tuesday in New York, a gain of roughly 0.7%.

Separately, the Australian dollar, which functions as a proxy for Asia-Pacific currencies, also sold off amid trade tensions. The the Aussie AUDUSD, +0.0271%  weakened sharply against its U.S. counterpart, with the Australian unit buying 0.7370 U.S. cents, compared with 0.7459 late Tuesday in New York, down about 1.2%.

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