Fundamental Comment

Dollar climbs to four-month high versus yuan on trade war escalation

Dollar climbs vs yuan

As the uncertainty increases about US tariffs increase against Chinese goods, the foreign exchange markets are in a risk-off mode once again on Thursday, with the dollar hitting a four-month high versus the yuan and three-month low versus the safe haven Japanese yen.

Talks between the Chinese delegation to Washington, led by Vice-Premier Liu He, and U.S. trade representatives would start on Thursday.  

However, there are fears that the meeting would not resolve the trade dilemma between the two sides after President Donald Trump said: "They broke the deal. They can’t do that, so they’ll be paying.”

China’s commerce ministry threatened that it would retaliate on Friday, if the U.S. raises tariffs on thousands of its products.

As of 11:17 GMT, the dollar index, which measures the greenback against a basket of six major currencies was 0.04 percent up at 97.42.

Versus the yuan, the dollar strengthened 0.62 percent to 6.8239, the highest level in four months.

But the green currency plunged to a low of 109.60, the lowest level sine early February, extending its drop for a third straight session.  

The yen gained ground as the investors piled to safe haven assets on fears the conflict between the US and china would escalate and thereby weigh on global trade outlook.

Later in the day, investors will focus on US indicators such as producer price index (PPI), trade balance and unemployment claims, as they can affect the movements of dollar index.

The PPI index may signal a 0.3 percent increase in April, trade deficit would widen to 51.4 billion in March and initial jobless claims may retreat by 15,000 to 215,000 last week.

Plus, Federal Reserve Chairman Jerome Powell will be speaking at a conference on “Renewing the Promise of the Middle Class.”

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