Written by 5:42 am Business, Forex Analysis Views: 4

Dollar Consolidates, Still in Demand

Capital Sands

The U.S. dollar has seen some selling in early European trade Monday, but from lofty heights as tensions between China and the U.S. continue to simmer and Japan enters recession.

 At 2:40 AM ET (0645 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 100.362, down 0.1%, having earlier Monday reached a three-week high. EUR/USD rose 0.1% to 1.0823.

White House trade advisor Peter Navarro added to the bad blood between the U.S. and China over the weekend when he suggested in an interview with ABC’s “This Week” that Beijing sent “hundreds of thousands of Chinese on aircraft to Milan, New York and around the world” to spread the virus after hiding it from the world for two months.

The Trump administration has been keen to paint China as the bad guys regarding the outbreak and spread of the coronavirus, not least against the backdrop of the November Presidential election, which is now less than six months away.

Late Friday, the U.S. moved to block chip supplies to Huawei Technologies, part of its plan to stop the Chinese telecom giant’s rollout of 5G mobile broadband.

The official yuan rate, which is highly sensitive to relations between the world’s two biggest economies, was on the back foot, falling to its lowest level since early April.

“We would be surprised if the PBoC didn’t allow USD/CNY to slowly but surely pave its way higher towards November,” said analysts at Nordea, in a research note to clients, “given the crystal-clear risk of a re-escalation of the tariffs war and continued issues of re-booting credit growth in China.”

At 2:40 AM ET, USD/CNY traded at 7.1128, up 0.2%.

Elsewhere, Japan’s economy has fallen into recession for the first time in four and a half years.

The world’s third-largest economy shrank 3.4% from January to March, the second straight quarter of decline. And the second quarter is expected to look far worse, with economists looking for the fall in gross domestic product of 22% — the biggest decline on record.

At 0240 AM ET, USD/JPY rose 0.15% to 107.18.

Additionally, the pound remains weak, having fallen overnight to $1.2076, its lowest since late March. The uncertainty over a post-Brexit trade deal with the EU has continued to weigh. Also, the Bank of England’s chief economist Andrew Haldane said over the weekend that the Bank is looking again at negative interest rates after having rejected the tool earlier.

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