Dollar firms as trade war fears stoke selling in emerging currencies

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—Bloomberg News


NEW YORK: The dollar rose on Tuesday, edging toward a six-month high hit last week, as the latest development in a growing trade conflict between the U.S. and its commercial partners prompted selling in emerging market currencies.

The Mexican peso and Canadian dollar posted the biggest losses against the U.S. dollar as trade war concerns rose. Other emerging market currencies also fell in tandem with the peso such as the South African rand.

The U.S. dollar, on the other hand, remained supported by a brighter economic outlook that has made an interest rate hike by the Federal Reserve next week a near-certainty. Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

“The story of U.S. data outperforming data around the world, especially in Europe, the UK, and Japan remains intact for now,” said Brad Bechtel, managing director, at Jefferies in New York.

But he noted that external factors that have influenced the dollar such as the Italian political crisis and trade tariffs have already built into the currency price.

“The U.S. dollar is going to be a bit rangebound for now with a firm undertone,” said Bechtel.

In mid-morning trading, the dollar climbed 0.3 percent to 94.28 against a currency basket. It hit 95.02 last week, its highest since early November and has risen nearly six percent since mid-April.

The dollar got a bit of boost after a U.S. service sector index as measured by the Institute for Supply Management rose more than expected in May to 58.6.

The Mexican peso, meanwhile, fell to a more than one-year low against the dollar, which was last up 1.6 percent at 20.3968 pesos. Against the Canadian dollar, the U.S. currency rose 1.0 percent to C$1.3060.

Mexico said it will impose a 20-percent tariff on U.S. pork imports after U.S. President Donald Trump slapped tariffs on steel and aluminium.

The tariff was in response to the Trump administration’s decision last week to impose steel and aluminium tariffs on Mexican exporters on grounds that countries including Mexico engage in competition damaging to U.S. national security.

EURO ZONE CONCERNS

The dollar’s strength was also helped by the euro’s lingering weakness with latest headlines offering little evidence Italy would stick to a path of fiscal restraint.

Bond yields rose on Tuesday, after new Italian Prime Minister Guiseppe Conte promised to bring radical change as he sought parliamentary backing for an anti-establishment government. <GVD/EUR>

The euro fell 0.3 percent against the dollar to $1.1665.—Reuters

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