Trade-war worries remained front and center on Monday, following President Donald Trump’s latest tariff salvos against some of its largest global partners. In response, traditional haven currencies like Japan’s yen strengthened.
Currencies considered safe in times of global uncertainty have outperformed due to their high liquidity versus alternatives perceived as riskier. The U.S. dollar at times also functions as a haven, though it seemingly didn’t on Monday, when the buck added on from a 0.3% loss last week. The ICE U.S. Dollar Index DXY, -0.09% was last down 0.2% at 94.290.
On Sunday, President Trump said that the U.S. would meet any duties from trade partners with additional levies. Last week, the European Union imposed reciprocal tariffs on U.S.-made goods.
The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!
— Donald J. Trump (@realDonaldTrump) June 24, 2018
Reports that the U.S. could restrict Chinese corporate that want to invest in U.S. tech companies, leading equities lower and reiterating the trade spat between the two countries.
Peter Navarro, President Donald Trump’s trade adviser, told CNBC Monday afternoon that a forthcoming Treasury Department report will focus on China, and with respect to other countries, there’s “nothing on the table.”
The yen USDJPY, -0.14% was up 0.2% against the greenback on Monday, with one dollar buying ¥109.79.
Meanwhile, the Australian dollar AUDUSD, +0.0000% slipped 0.4% to $0.7409. The Aussie is seen as a proxy for China, which is at the center of the U.S.-led trade spat, due Australia’s deep trade ties with Beijing.
The buck also gained against China’s yuan, buying 6.5448 onshore USDCNY, +0.0825% and 6.5410 offshore USDCNH, +0.2415% up 0.6% and 0.4% respectively.
The Wall Street Journal reported that the PBOC on Sunday indicated that it would reduce the amount of reserve banks are required to keep with the central bank, freeing up more than $100 billion—signaling a loosen of its policies which could weigh on its monetary unit. That said, the yuan has maintained its strength against the buck compared against the performance of other major currencies against greenback.
Elsewhere, Turkey’s lira USDTRY, -0.1516% dropped against the dollar and the euro EURTRY, -0.1132% in the wake of a victory for incumbent President Recep Tayyip Erdogan in Sunday’s presidential and parliamentary elections. Erdogan, who was seen as the unfavorable candidate for markets, receiving 52.5% of the vote, enough to avoid a second runoff election. Investors are concerned about Turkey’s high double digit inflation, its reliance on foreign and particularly dollar-denominated funding, as well as the independence of its central bank under Erdogan’s next administration.
One dollar last bought 4.6897 lira, up from 4.5373 earlier Monday, while the euro bought 5.4908, up versus 5.2812 earlier in the session.
Analysts at UniCredit in a Monday research note wrote “in terms of our preview of the election, the current result coincides with the bearish market scenario as it assumes that macroeconomic policymaking will turn poor once again as the president puts pressure on both the government and the central bank to reflate the economy further.”
Researchers there attributed earlier gains to unwinding of bearish bets that the lira would weaken following the vote: “Accordingly, beyond the short-covering rally based on reduced uncertainty, the lira is likely to be vulnerable if our assumption that the current ‘checks and balances’ on policy will be eroded further is correct,” referencing Erdogan’s intension to control the country’s central bank and monetary policy.