Trade tensions keeping FX market in a boil

Investor appetite in commodity-linked currencies is thin midst the series of body blows from the U.S. that is acting as shock waves to global trade.

On Monday, a rally in the Euro gave way to the dollar, which edged up, thanks to trade tensions between the European Union and the United States playing spoil sports for the short term direction for the said currencies.

Investors are increasingly steering away from risk. Treasury yields have declined and Asian equities are witnessing a retreat. U.S. President Donald Trump is beating the drums of war with a report stating that he plans on barring Chinese companies from investing in U.S. tech firms as well as plans of blocking more tech exports to China.

For investors, this is an additional shock and comes in the wake of another report stating that Trump intends on imposing a 20% tariff on all cars exported from the European Union. The EU has said, if this were to happen, it will have no choice but to retaliate.

On Monday, as of 0730 GMT, the Euro was down 0.2% to $1.1629, while the USD rose by 0.2% against a basket of major currencies. The greenback hit its two-week low against the Japanese yen, indicating that investors have little appetite for risk when global trade is increasingly spinning out of control.

“U.S. plans to unveil limits on Chinese tech firms’ investments in U.S. companies have delivered another blow to risk sentiment this morning. The trade dispute drags on and the yen is the main beneficiary,” said Kit Juckes, a macro strategist at Societe Generale.

“For the euro there’s a continuous potential for event risks, amongst others political crises in Berlin, and this means a disadvantage in the race for the status as the world’s leading currency,” commented Ulrich Leuchtmann, a currencies strategist at Commerzbank.

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