Dollar strengthens on mounting worries about US-China trade war

The dollar rose to the highest in nearly two weeks against a basket of currencies on Thursday, as a flare-up in trade tensions between the United States and China drove traders to buy the US currency.

The dollar index, which measures the greenback against a basket of six other currencies, was up 0.51% at 95.109, the highest since July 20.

“Overall, the dollar is stronger today, and most of it seems to be coming on the back of increased trade tensions,” said Charles Tomes, senior investment analyst and trader at Manulife Asset Management in Boston.

US President Donald Trump sought to ratchet up pressure on China for trade concessions by proposing a higher 25% tariff on $200 billion worth of Chinese imports, his administration said on Wednesday.

China on Thursday urged the United States to “calm down” and return to reason.

“Generally speaking, trade tensions have not been bearish for the dollar,” said Gary Kerdus, global payments executive for XE.com, in Orange County, California.

The yen, which tends to rise during periods of geopolitical or financial stress, strengthened on Thursday. The dollar was 0.08% lower against the yen, while the euro was down 0.64% against the Japanese currency.

China’s offshore yuan, which has been under pressure on worries the months-long trade dispute will hurt its economy, slipped as low as 6.8808 yuan to the US dollar, its weakest since May 2017.

The Australian dollar, seen as a proxy for Chinese growth because of Australia’s export-reliant economy, also sold off, slipping 0.5% against its US counterpart.

The US currency was supported by an upbeat assessment from the US Federal Reserve on Wednesday.

Investors in the currency market will be looking to July employment data, due on Friday, for the next catalyst for the greenback. According to a Reuters survey of economists, nonfarm payrolls likely rose by 190,000 jobs in July after increasing by 213,000 in June.

“If we get a strong number, that could serve as a nice short-term catalyst to give market participants more of a conviction that the Fed is going to continue its somewhat aggressive rate-hike path,” said Kerdus.

Meanwhile, the pound fell even as the Bank of England lifted interest rates from crisis-era lows, after Governor Mark Carney said monetary policy needed to “walk not run” and expressed concern about the risks of a cliff-edge Brexit.

Sterling has lost almost 10% of its value since hitting a post Brexit-referendum high in April, amid worries that Britain will fail to secure a trade deal before it exits the European Union in March. On Thursday, the pound was 0.79% lower at $1.302.