- Fear of global trade war boosts USD
- Angela Merkel faces another blow
- Increased construction spending further benefits USD
The US dollar began the second half of 2018 on a high note yesterday. The currency benefitted from rising international tensions over a possible trade war and political developments on the European continent, with investors buying large amounts of dollars in an attempt to prevent losses.
Global tension is escalating ahead of Friday’s deadline, when the Trump government is set to impose tariffs amounting to $34 billion on Chinese exports into the United States. Two recent polls of Chinese manufacturers showed slower activity, mainly because of reduced exports.
German Chancellor Angela Merkel received another blow when her interior minister offered to resign over her government’s refugee policies. This boosted the USD/EUR rate.
A market economist at London-based Capital Economics, Oliver Jones, said: “The dollar seems to have benefited from safe-haven flows …as trade tensions and political developments in Europe have reduced investors’ appetite for risk.”
He added that even if international trade concerns ease, the USD will probably be boosted by another increase in Treasury yields in 2018.
In light of the strong dollar, BNP Paribas softened its projections for the GBP and Euro for the end of the year.
The dollar index improved by 0.4% to 95.048 yesterday afternoon. The USD was further boosted by an increase of 0.4% in US construction spending in May and unexpectedly good figures for the manufacturing index published by the Institute of Supply Management.
Recent positioning data was still supportive of the USD overall and merely extended the current themes in currency markets.
For the second week in a row, USD longs moved slightly higher, while EUR longs dropped even further to their lowest levels in close to two months. The Swiss franc was bolstered by traders and investors looking for a safe haven.
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