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Dollar Up Sharply on Solid Manufacturing Activity, Trade Concerns

7/3/2018, 2:12:27 PMMarket Analysis
Dollar Up Sharply on Solid Manufacturing Activity, Trade Concerns

The U.S. dollar rose against its rivals buoyed by upbeat U.S. economic data pointing to underlying strength in the economy reaffirming investor expectations that the economy would be the least affected in a potential trade war with its trade partners.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose by 0.63% to 94.82.

ISM manufacturing data for June showed an uptick to a reading of 60.2 from 58.7, beating expectations for a reading of 58.4. A reading above 50 in the ISM index indicates an expansion, while a reading below 50 indicates a contraction in manufacturing, which accounts for about 12% of the U.S. economy.

A separate report from the Commerce Department on Monday, meanwhile, showed construction spending increased 0.4% in May. That was slower than the 0.5% growth economists had forecast.

The upcoming $34 billion of U.S. tariffs on Chinese imported goods slated for July 6 drew support for the greenback as traders bet that the U.S. would fare better in a potential trade war than its trade partners as domestic growth remains strong.

"Unless worries of a full blown trade war evaporate in the second half of 2018, investors are likely to continue buying safe-haven currencies, including the dollar, Japanese yen and Swiss franc," said Rabobank.

USD/JPY fell 0.05%, while USD/CHF rose 0.41% to 0.9947.

The dollar was also supported by a plunge in the euro as fresh political uncertainty in Germany roiled the single currency after German Chancellor Angela Merkel's interior minister offered to quit amid a disagreement over migration policy.

EUR/USD fell 0.65% to $1.1608.

GBP/USD fell 0.60% to $1.3132 despite UK manufacturing data topping economists' estimates as investors fret an upcoming Brexit cabinet meeting due later in the week.

USD/MXN rose 1.35% as traders remained uncertain what the future holds for Mexico's economy with newly elected President Andrés Manuel López Obrador at the helm.