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Dollar Gain as Escalating Trade Concerns Support Safe-Haven Demand

8/31/2018, 4:53:01 PMMarket Analysis
Dollar Gain as Escalating Trade Concerns Support Safe-Haven Demand

The dollar gained on Friday as reports that U.S. President Donald Trump was considering plans to impose tariffs on $200 billion in Chinese imports as soon as next week boosted safe-haven demand.

Citing six people familiar with the matter, Bloomberg reported that Trump wanted to move ahead with a plan to impose the tariffs as soon as a public-comment period concludes next week. The report came after the U.S. and China imposed tariffs on $16 billion worth of goods on each other. The two countries also slapped each other with a $34 billion worth of imports in July.

The U.S. Dollar Index, widely seen as a safe-haven asset in recent months, gained 0.04% to 94.68 by 11:30AM ET (03:30 GMT).

"There is an ongoing trend to buy the dollar on the trade friction theme, which has negatively affected emerging market currencies and in turn fuels the dollar's rise," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

Meanwhile, Trump said his administration is examining “formulas” to determine if countries are manipulating their currencies.

“It is a formula,” Trump said Thursday. “And we are looking very strongly at the formula.”

The U.S. President has repeatedly accused China of manipulating its currency, although he was not able to present evidence to support his claim. His accusation also appeared to conflict with findings of the Treasury Department, which refused to name any country as currency manipulator earlier in the year in its semi-annual report on forex policy.

The USD/CNY pair traded 0.2% to 6.8343 on Friday. The People's Bank of China (PBOC) set the yuan reference rate at 6.8246 vs the previous day's fix of 6.8113.

Elsewhere, the AUD/USD pair lost 0.2%. The pair received some support briefly in the day after China posted upbeat data. Official data showed that growth in China’s manufacturing sector unexpectedly rose in August as the official Purchasing Managers’ Index (PMI) rose to 51.3. Analysts previously expected the number to drop to 51.0 from July’s 51.2.

The USD/JPY pair was little changed at 111.00.