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Greenback on the up as US-China fallout fears return

Chris Lee

The US dollar rose in the foreign exchange markets as weekly trading got underway on Monday following suggestions that tensions between the US and China could be about to surge again.

A spat between the two countries dominated the foreign exchange trading headlines for much of last year, and the two engaged in tit for tat impositions of tariffs and fees on imported and exported goods.

That was largely moved off the agenda by the coronavirus crisis, although there have been some signs in recent days that it could be about to return.

According to Mike Pompeo, who is the US secretary of state (a figure equivalent to foreign minister in other countries), there is some evidence to show that the coronavirus came from a laboratory in China.

Pompey said it potentially came from a lab in the city of Wuhan, which was the epicentre of the outbreak.

However, there were no particular details given.

This came after Donald Trump said on Friday that there could be more trade war moves to come.

The consequence for the forex markets was that the greenback was snapped up quickly by traders looking to build some security.

The US dollar index, which is an artificial tool used by traders to monitor the performance of the greenback compared to six other currencies from across the globe, was up.

At one stage during the night in the GMT time zone, it was seen at 99.377, which reflected a rise of 0.3%.

There are some fears for the health of the Chinese economy if more trade war moves are made.

The economy there has been left significantly damaged in recent months by the pandemic. The country has, for example, seen a quarterly contraction in its economy – the first since records on the matter were first kept.

Trump is running for re-election in a presidential vote due to take place this November.

There was some suggestion from analysts that his latest attempt to act in an isolationist manner could be part of a strategy to win over American workers.

The single European currency also suffered as trading got underway in what is likely to be another potentially volatile week for the markets.

It was down by almost half a percentage point against the US dollar, reaching 1.0938 at one point.

The British pound also plunged, this time by 0.3%, in its pair with the dollar. It was seen at 1.2462 at one stage.

The Japanese yen, however, bucked the trend and even managed to rise slightly against the greenback.

The dollar was down by 0.1% in that pair.

Some currencies were also affected by further issues with the price of oil.

Futures instruments for US crude oil were seen trading at almost 6% lower at one point, reaching $18.66 per barrel.

This had a knock-on effect for currencies such as the Norwegian krone, as Norway relies heavily on the export of oil.

The dollar was up by nearly 2% in its pair against the krone.

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Chris Lee
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