The United States will raise tariffs on $200 billion worth of Chinese imports effective Friday. The dollar weakened as concerns about the escalating trade dispute grow.
The escalating trade dispute prompted investors to raise their expectations of a U.S. rate cut later in the year. Unlike previous episodes when the dollar benefited from an increase in trade tensions U.S. President Trump’s latest threat have prompted market strategists to focus on the corrosive impact on Washington.
Data earlier showed China’s trade surplus with the United States, a major irritant for Washington, expanded to $21.01 billion in April from a month ago. This is a factor that might provoke a hardening stance from U.S. officials.
Focus is on trade talks on Thursday and Friday in Washington. Chinese Vice Premier Liu will try to salvage a deal that would avoid a sharp increase in tariffs scheduled to take effect on Friday.
Chinese Vice Premier Liu visited the United States this week for trade talks despite Trump threats. U.S. officials have said China has backtracked on substantial commitments made during months of negotiations seeking to end their trade war.
Broader currency markets were largely stable. Foreign exchange traders have not panicked about the prospect of a breakdown in negotiations between China and the United States. The moves on Tuesday were small following a bout of nerves at the start of the week.
START TRADINGForex – US will raise tariffs from 10% to 25%
Volatility in currency markets is currently very low and in recent weeks investors have also curtailed their bets on big swings in the pound.
The U.S. dollar weakened 0.1% to 97.50. Market expectations for a rate hike stand at about 80% before the end of the year.
The safe-haven yen gained in recent days, with the currency up 0.2% against the dollar at 110.07 yen. This took its gains to more than 1% so far this month.
The New Zealand dollar was a notable loser overnight after the central bank cut benchmark cash rates to 1.5% from 1.7%.
The euro was up 0.1% at $1.1213. However, it held within recent ranges as currency traders were still undecided on the trade war front.
Sterling weakened on Wednesday on signs that talks between Britain’s government and the main opposition Labour Party to break the Brexit deadlock may soon collapse. It fell towards $1.31, down 0.6% on the day, and also hit a six-day low versus the euro of 86.11 pence, down 0.5% on the day.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money