Dollar Strengthens on Rising Trade Tensions

Dollar Strengthens on Rising Trade Tensions


The dollar index which measures the greenback against a basket of major currencies finished higher for the second consecutive day on Friday as investors rushed to the dollar safe haven due to the rising risks. DXY traded at a thirteen-month high of 96.98 in August, but the gains were trimmed with major fundamental developments to end the month at 95.10, with a gain of 0.5%. The index kicked-off the week slightly higher at 95.19 following the growing trade tensions over the weekend. The United States and Canada failed to reach a trade agreement last week, and Trump tweeted on the weekend about how bad NAFTA was for the US economy. According to the Trump administration, the U.S. will continue with the trade deal with Mexico and will resume talks with Canada on Wednesday.


The British pound drifted lower during the Asian session as Barnier opposed May’s proposal. Last Wednesday, the sterling found support following the remarks of the EU chief negotiator Barnier. He announced that the European Union is ready to offer Britain an unprecedented deal and the GBPUSD rose to a one-month high of $1.3043. However, the GBPUSD traded at a low of $1.2895, weighed down by his latest comments.


The Australian dollar dropped to its lowest level since December 2016 against the United States dollar ahead of the Reserve Bank of Australia meeting tomorrow. The trade disputes between the United States and China could lead to a slowdown in the Chinese economy which will harm the Australian economy. On the other hand, the divergence of the interest rate path between the U.S. and Australia is weighing on the pair. Market participants expect the Reserve Bank of Australia to keep interest rates unchanged tomorrow. Since this meeting is not considered a live meeting, the focus will shift to the second quarter GDP figures on Wednesday. The AUDUSD reached a low of 0.7166 during the Asian session.


Gold prices ended lower for the fifth consecutive month, weighed down by dollar strength and high treasury yields. In August, the gold ounce traded at a low of $1160, its lowest level since January 2017. The bullion remains caught in a tight trading range between $1196 and $1208 ahead of important data this week. On the other hand, the silver ounce fell to a three-week low of $14.39.


Oil prices concluded August on a higher note with Brent futures recovering most of the losses incurred in July. The prices are finding support from the looming US sanctions against Iran and the supply disruption from Venezuela. The West Texas Intermediate crude future is hovering near the $70 level, and the Brent future is trading at a high of $77.88 per barrel. The U.S. energy services firm Baker Hughes reported on that the U.S. oil rig count rose to 862 from 860.

Major Economic Events

GMT Country Event Expectation Previous
7:55 EU German Manufacturing PMI (Aug) 56.1 56.1
8:00 EU Manufacturing PMI (Aug) 54.6 54.6
8:30 US Manufacturing PMI (Aug) 53.9 54.0

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