The U.S. dollar got a modest lift versus the euro and most other major currencies Monday, with rising U.S.-China trade tensions prompting investors to unwind some short positions on the beleaguered greenback.
China said Sunday it would launch an anti-dumping investigation into U.S. sales of chicken and auto products, a move apparently in response to Washington’s decision to impose punitive sanctions on Chinese tire imports late last week.
«Talk of rising trade tensions after President Obama announced tariffs on Chinese imports may have acted as a catalyst [for a dollar rebound], but the move is unlikely to lead to a trade war,» wrote strategists at Brown Brothers Harriman. «So far the dollar’s recovery has been muted.»
The euro traded at $1.4558 versus the dollar in recent action, down from $1.4587 in North American trade late Friday. Rising risk appetite last week helped push the euro to a new high for the year above $1.46.
The British pound changed hands at $1.6553, down from $1.6685.
The dollar index (DXY 76.95, +0.30, +0.39%) , a measure of the U.S. unit against a basket of rival currencies, traded at 76.986, up from 76.662 late Friday. Last week, the index hit its lowest level since September 2008 at 76.457.
The threat of a trade war is exaggerated, the BBH strategists argued.
«While there is a risk of a protracted retaliatory spiral, it seems unlikely at this juncture and the upcoming bilateral and G20 meetings will provide an opportunity to diffuse it at the top levels,» they wrote.
The dollar erased an early loss to trade slightly higher versus the yen after remarks by Japanese Vice Finance Minister Yasuatake Tango.
The dollar traded at 90.82 yen, up from 90.69 yen in late Friday, erasing an earlier loss against the Japanese currency.
Tango, the top bureaucrat in the finance ministry, said officials are paying «close attention» to the yen, but wouldn’t comment on specific market levels, Dow Jones Newswires reported.
The yen had been buoyed in early Asian trade after funding rates for dollar loans dropped below those of its major rivals.
The end of September brings the end of the first half of the Japanese fiscal year. Traditionally, Japanese exporters repatriate overseas profits for book-closing purposes this time of year. Even in years when such repatriation isn’t as great, investors’ expectations of the seasonal investment flows are usually enough to buoy the Japanese currency.
But beyond that, strategists cited lower dollar-borrowing costs as pressuring the greenback. In recent months, the dollar has lost to the yen whenever investors grew more wary and sought the perceived safety of a lower-yielding currency — but now the dollar has taken the yen’s place.
«Dollar/yen until recently was a reliable risk appetite/aversion barometer. As risk appetite grew, the yen declined and vice versa. Well, no more — and you can trace the change in behavior to the time short-term dollar rates dropped below the rates of the yen and [Swiss] franc,» Cantor Fitzgerald economist Uwe Parpart said in emailed comments Monday.
Last Friday, he said, the three-month London interbank offered rate, or Libor, for dollars stood at 0.29900%, below the franc’s 0.30667% and the yen’s 0.35938%, he said.
«As this yield differential favoring the yen persists — and it may even become more pronounced — the dollar, not the yen and franc as was traditionally the case, will function as the major funding currency and be sold for higher-yielding risk assets,» he said.
Source: www.marketwatch.com.
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