Dollar Rebounds As Trade War Escalates

(RTTNews) - A steep escalation in the trade related tensions between the U.S. and its trade partners boosted the dollar and the Dollar Index during the week ended July 11. The U.S. dollar inter alia strengthened against the euro, the British pound, the Japanese yen, the Canadian dollar and the Swiss franc. The greenback however weakened against the Australian dollar and the Swedish krona.

The Dollar Index (DXY), a measure of the Dollar's strength against a basket of 6 currencies added 0.92 percent during the week ended July 11. The DXY which had closed at 96.96 on July 4 finished trading at 97.85 a week later. During the week, the index traded between the low of 96.89 recorded on Monday and the high of 97.96 recorded on Friday. The dollar strengthened heavily on Monday after U.S. President Donald Trump announced new tariffs for several countries. The tariffs included 25 percent tariffs imposed on Japan and South Korea. Trump also threatened an additional 10 percent tariff on nations aligning with what he considered "anti-American" policies of BRICS emerging economies. However, the extension of the deadline for "reciprocal" trade tariffs to August 1 from July 9 limited the Dollar's rally.

Anxiety ahead of the release of the minutes of the Federal Open Markets Committee on Wednesday also boosted the dollar. The greenback held firm despite the minutes revealing most participants' assessment that some reduction in the target range for the federal funds rate this year would likely be appropriate. Participants had also noted that the upward pressure on inflation from tariffs could be temporary or modest and that medium- and longer-term inflation expectations had remained well anchored.

The dollar was also supported by the strong labor market update. Data released by the U.S. Department of Labor on Thursday showed initial jobless claims unexpectedly falling to 227 thousand during the week ended July 5 from 232 thousand in the previous week. Markets had anticipated a level of 235 thousand. The data reinforced the resilience of the U.S. labor market despite high interest rates and economic uncertainty.

The Dollar Index recorded gains of close to a percent in the above backdrop.

Amidst concerns about the slow trade negotiations between the U.S and the E.U., the euro slipped 0.76 percent against the Dollar. During the week ended July 11, the EUR/USD pair dropped to 1.1690, from 1.1779 a week earlier. The pair ranged between $1.1791 recorded on Monday and $1.1662 touched on Thursday. Data released during the week also showed retail sales in the region decreasing 0.70 percent in the month of May.

Hit by weak economic growth data, the pound dropped 1.11 percent against the dollar during the week ended July 11. The sterling, which had closed at $1.3653 on July 4 declined to $1.3501 by July 11. The GBP/USD pair traded between a high of 1.3668 touched on Monday and a low of 1.3481 recorded on Friday. Data released on Friday showed the British economy contracted 0.1 percent month-over-month in May, following a 0.3 percent decline in April. Markets had on the contrary expected an expansion of 0.1 percent.

The Aussie however rallied against the U.S. Dollar during the week ended July 11 in the backdrop of the Reserve Bank of Australia unexpectedly holding rates steady. The RBA was widely expected to cut rates by a quarter percent. The gain for the AUD/USD pair during the week was 0.41 percent, from 0.6553 on July 4 to 0.6580 on July 11. The AUD/USD pair traded between a low of 0.6485 touched on Monday and a high of 0.6597 recorded on Friday.

The Japanese yen plunged close to 2 percent against the U.S. dollar during the week ended July 11 amidst fresh trade tariffs announced by the U.S. The USD/JPY pair which had closed at 144.56 on July 4 increased to 147.42 in a week's time. The pair ranged between 144.21 recorded on Monday and 147.52 recorded on Friday.

Amidst safe haven demand attributed to trade-related turbulence emanating from the U.S. as well as the escalation in geopolitical tensions between Ukraine and Russia, the dollar has remained firm on Monday. The Dollar Index is currently at 97.83 versus the intra-day high of 98.10 and Friday's closing level of 97.85. The greenback was also supported by anxiety ahead of the release of consumer price inflation data on Tuesday, the producer price inflation updates on Thursday and the retail sales reading due on Thursday.

The EUR/USD pair is currently at 1.1695 versus 1.1690 at close on Friday. The GBP/USD pair also has decreased to 1.3487 from 1.3501 at the close of the previous week as markets brace for inflation and unemployment readings from the U.K. The AUD/USD pair has slipped to 0.6571. Amidst expectations that Bank of Japan would raise its inflation forecasts, the yen has strengthened, dragging down the USD/JPY pair 0.11 percent to 147.26 from 147.42 at close on Friday.