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Dollar tumbles as trade war hits US economic data

Published : Sunday, 26 May, 2019 at 12:00 AM  Count : 282

Dollar tumbles as trade war hits US economic data

Dollar tumbles as trade war hits US economic data

NEW YORK, May 25: The dollar fell on Friday from a two-year high against a basket of major currencies after orders for US-made capital goods fell, further evidence that manufacturing and the broader economy are slowing, due in part to the US-China trade dispute.
The weaker-than-expected data, a closely watched proxy for business spending plans, drove the dollar lower and added to a fall which began Thursday following a report that showed manufacturing activity hit its lowest level in almost a decade in May.
Taken together, the reports suggested a sharp slowdown in US economic growth is under way, which could affect the dollar's safe-haven status.
The dollar index was down 0.27per cent at 97.587. It was also 0.80per cent off a two-year high of 98.371 hit in the previous session.
Some analysts initially believed that a trade war would be a boon for the US dollar - both because the currency serves as a safe haven in times of uncertainty and because the United States was likely to be hurt the least, but that has not proven to be true.
"The IMF suggests that US import tariffs are mainly paid for by US companies, depressing their profit margins. Hence, it should not be surprising to see US capex plans being cut radically, which should soon translate into moderating labor market conditions," wrote Hans Redeker, global head of foreign exchange strategy at Morgan Stanley.
China on Friday denounced US Secretary of State Mike Pompeo for fabricating rumors after he said the chief executive of China's Huawei Technologies Co Ltd was lying about his company's ties to the Beijing government.
Escalating trade tensions and weak data have fueled rate cut expectations by the US Federal Reserve. Money markets now broadly expect one rate cut by October followed by another by January 2020.
"In the current circumstances, we strongly suspect that further escalation in protectionism will lead the Fed to consider easing policy," wrote Michael Hanson, head of global macro strategy at TD Securities. "Increases in inflation should be relatively short-lived, while the hit to growth could be more persistent."
Dollar weakness also helped boost sterling from a 4-1/2-month low, though the rally was primarily driven by UK Prime Minister Theresa May's announcement on Friday that she would quit after failing to deliver a Brexit deal.    -Reuters










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