The US dollar’s recent meteoric rise to half-year peaks came to an end on Monday after President Donald Trump re-ignited the prospect of a trade war during a major interview with an American TV network.
In comments made to CNBC, Trump said that he would consider placing additional import tariffs on Chinese goods – or even on all of them.
Currently, there are tariffs in place on just $34bn worth of Chinese imports, although the total value of all items from China sits at around $505bn. Trump, in his interview, said he was “ready to go to 500”.
“I’m not doing this for politics, I’m doing this to do the right thing for our country,” the President told journalist Joe Kernen.
“We have been ripped off by China for a long time,” he added.
As a result, the US dollar/Japanese yen pair dropped to under the 111 point, which marked a new 10-day low for the pair. The slide in the dollar’s value was also in part due to Trump’s comments on the activities of the Federal Reserve.
Last week, the Fed’s Chair Jerome Powell told Congress that the central bank was likely to raise rates over the rest of the year.
Trump, however, took a different view. He told Kernen that he worried about the effect that interest rate rises could have on the wider economy, “because we go up and every time you go up they want to raise rates again”.
However, he did strike an ultimately conciliatory tone. “I am not happy about it. But at the same time I’m letting them do what they feel is best,” he said.
Markets believe that the Fed will continue with its plan despite the comments from the President.
Elsewhere in the forex markets, the dollar’s relatively low performance following President Trump’s comments meant that other global currencies which otherwise may have suffered on the domestic front were able to surge ahead.
In the UK, the British pound and US dollar pair found itself on the rise again following recent lows. Despite the fact that the Bank of England was rendered unlikely to increase interest rates next month following a set of negative macroeconomic releases in Britain, the pound was able to capitalize on the dollar’s drop in value.
Looking ahead for the pound, the ongoing battles in Britain over Brexit continue, with European leaders expressing concern over the substance of the country’s departure plans. However, with the British Parliament entering its summer holiday phase tomorrow on Tuesday, it’s likely that Prime Minister Theresa May will be able to enjoy some relative political stability.
Forex traders have a lot of other milestones to look forward to this week as a busy economic calendar goes into full swing.
The USA’s Housing Price Index month-on-month data for May is released on Tuesday, while there will also be a weekly update on crude oil stock.
The Antipodeans will also have news this week. The New Zealand month-on-month trade balance data will be revealed, while year-on-year Consumer Price Index data for Australia will be released in the early hours of Wednesday.