Dollar stands tall as trade war concerns hit rivals

LONDON (Reuters) – The dollar advanced across the board on Tuesday, rising more than a quarter of a percent against its rivals, as concerns about a likely escalation in trade conflict between the United States and China prompted investors to buy the greenback.

A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The public comment period on a U.S. proposal for new tariffs on Chinese goods is set to end on Thursday, after which U.S. President Donald Trump can follow through on plans to impose tariffs on $200 billion more of Chinese imports, though it is unclear how quickly that will happen.

Emerging market currencies came in for special punishment as investors feared these export-oriented economies would be caught in the middle of any escalating trade conflict.

A JP Morgan emerging market currency index .MIEM00000CUS edged toward a more than one-year low hit in mid-August while the Indian rupee INR=D3 plummeted to a record low.

“The general sentiment is that the dollar has not done too badly out of the trade war concerns, with concerns the U.S. might signal a fresh escalation in the trade conflict,” said Kenneth Broux, an FX strategist at Societe Generale in London.

The U.S. dollar’s status as the chief reserve currency makes it the primary beneficiary of concern over trade conflicts. The dollar .DXY gained a quarter of a percent at 95.39 against a basket of major currencies. It has gained nearly 7 percent since mid-April when trade tensions first arose.

FILE PHOTO: U.S. Dollar and Japan Yen notes are seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration/File Photo

On a positioning basis, markets are firmly in the stronger dollar camp, with net outstanding positions holding just off the highest levels since January 2017, calculations by Reuters and Commodity Futures Trading Commission data show.

Though main Chinese stock benchmarks ended up more than a percent, underlying investor sentiment remained wary with Chinese state-run banks seen intervening to support the local currency.

Data this week also might lend further fuel to the dollar rally as U.S. investors return after a long weekend. U.S. August manufacturing ISM data is due later in the day and monthly payrolls data is due on Friday.

Kumiko Ishikawa, senior analyst at Sony Financial Holdings, said anxiety has come to the fore as a result of multiple issues, including the China-U.S. trade war and uncertainty about how the NAFTA talks will play out.

“If things are like that, there are no moves to sell the yen to take risk,” she said, adding that the yen rather than emerging market currencies will be bought “when the mood worsens”.

The yen JPY=EBS rose 0.04 percent to 111.07 yen, giving up some gains after touching as high as 110.90 during morning trade. It was also higher against the euro, gaining about one-fifth of a percent to 128.84 yen EURJPY=EBS.

World FX rates in 2018:

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