The United States of America dollar, on Tuesday, June 13, to an 11-month high and the euro slumped after U.S. President Donald Trump threatened more tariffs on China in an escalating trade dispute investors fear could hurt global growth.
The dollar rose against a basket of currencies as traders bet on a escalating trade war forcing inflation up in the U.S. because of costlier imports, raising the prospect of more interest rate rises.
On Tuesday, the dollar strengthened half a percent versus a basket of major currencies to hit $95.266, its highest since July 2017.
Hostility over trade between the world’s two largest economies intensified on Tuesday when Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods, prompting a swift warning from Beijing of retaliation.
Months of tit-for-tat trade measures between Beijing and Washington have had a fairly limited impact on currencies up to now. But this week’s threats have hurt currencies including the Australian dollar and Swedish crown, vulnerable to protectionist measures.
Chinese stocks sank almost 4 percent and the yuan slumped to a five-month low overnight.
Investors bought currencies traditionally considered safe havens.
The Japanese yen climbed 0.8 percent against the dollar to 109.56 yen, its highest level in a week JPY=D3 and the Swiss franc rose 0.3 percent against the dollar to 0.9918 franc. CHF=EBS
Traders are divided other whether the row will affect the dollar meaningfully.
Currency markets in general dislike trade intervention, and previous protectionist efforts by the U.S. government have weakened the dollar.
The yuan slid to a low of 6.4490 to the dollar at one point, its weakest since Jan. 15.
The euro, meanwhile, remained under heavy pressure due to a dispute in Germany’s governing coalition and expectations the European Central Bank will hold interest rates steady into 2019.
Chancellor Angela Merkel’s Bavarian allies may defy her by implementing a plan to limit immigration at the German border, which could destabilize her three-month-old coalition.
