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Dollar sinks again after renewed European stability

The US dollar experienced a decline in its value on Tuesday after a few days of strong performance.

It slipped by 0.27% to 94.34 on Monday, and other global currencies swiftly moved to gain as a result.

The decline was in part due to a re-stabilising of the European political scene. In Germany, Chancellor Angela Merkel secured an agreement with her Interior Minister over the key issue of asylum seekers’ rights

Although minister Horst Seehofer had originally threatened to resign, a political crisis was averted when he and Merkel agreed to implement stricter border controls between Germany and Austria.

While the value of the Euro had declined when the crisis began on the weekend and continued into Monday, it surged back ahead on Tuesday once the deal had been struck.

Ultimately, the Euro/US dollar pair rose in value by 0.16% to $1.1658.

However, there were also domestic reasons for the greenback slipping in value on Monday.

Wednesday is 4 July, which marks Independence Day. This is a federal holiday in the United States, which means that markets will be closed – and it is believed that a slight sell-off of the US dollar was in part a response to this.

Investors in the US dollar will also have to contend with a number of information releases later this week. On Friday, the payroll datasets which are made public once every month will come into the public domain, while the Federal Reserve, the USA’s central bank, will make the minutes of last month’s meeting public on Thursday, a move which may well impact investor perception of the interest rate changes.

More broadly, the US dollar also dropped against other global currencies. The US dollar/Japanese yen pair fell by 0.31% to Y110.56, while the US dollar and Swiss franc pair dropped by 0.17% to 0.9919.

Although some investors were expecting the impact of this week’s political discussions over Brexit to prevent the British pound from experiencing too much of a surge, problems with the dollar were even evident in the UK. The GBP/USD pair rose by 0.29% to $1.3184, suggesting that the dollar’s decline was truly global in nature.

Once Independence Day is over, the dollar will then have to deal with the imposition of tariffs on goods imported from China – which begins on Friday 6 July.

It is believed that the total value of these tariffs will be over $34bn. China is expected to respond in kind by placing tariffs equal to $34bn on goods from the USA.

Experts do not expect this to cause major changes, but investors will be mindful of the potential impact it could have, especially when it comes to the wider ripple effect of the Chinese economy.

Although the Australian dollar actually rose by 0.7% on Tuesday to the value of USD $0.7387, Australia’s status as a regular seller to China could in the long-term mean that any impact caused by tariffs on the Chinese economy could have a knock-on effect for other global currencies too.

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