Dollar Tumbles Amid Fears Trade War May Threaten U.S. Economic Growth

The news drove down demand for higher risk assets, making the safe haven Japanese Yen and Swiss Franc the big winners on Monday. Commodity, or export-oriented currencies like the Canadian, Australian and New Zealand Dollars were mixed with the Loonie trading higher and the Aussie and Kiwi lower.
James Hyerczyk

The U.S. Dollar fell against most major currencies on Monday after China imposed extra tariffs on U.S. products, signaling the start of a trade war between two of the world’s largest economies.

June U.S. Dollar Index futures settled at 89.706, down 0.106 or -0.12%.

Daily June U.S. Dollar Index

According to China’s finance ministry, China imposed extra tariffs of up to 25 percent on 128 U.S. products including frozen pork, as well as on wine and certain fruits and nuts, in response to U.S. duties on imports of aluminum and steel.

The tariffs, which took effect on Monday, matched a list of potential tariffs on up to $3 billion in U.S. goods published by China on March 23.

The news drove down demand for higher risk assets, making the safe haven Japanese Yen and Swiss Franc the big winners on Monday. Commodity, or export-oriented currencies like the Canadian, Australian and New Zealand Dollars were mixed with the Loonie trading higher and the Aussie and Kiwi lower.

U.S. Economic Data

U.S. factory activity slowed in March amid a decline in new orders, but growth in the manufacturing sector remained underpinned by strong domestic and global economies.

On Monday, the Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 59.3 last month from 60.8 in February. Economists were looking for a reading of 60.1.

Construction Spending edged up 0.1 percent in February after coming in unchanged in January. Economists had forecast construction spending accelerating 0.5 percent in February. Construction spending increased 3.0 percent on a year-on-year basis.

U.S. financial markets showed little response to the data.

Daily June E-mini S&P 500 Index

U.S. Stock Market

The major U.S. stock indexes fell sharply in reaction to worries about a trade war, and fears that the tech industry is going to fall under the scrutiny of the federal government which usually means more regulation.

Investors were also rattled after Trump linked his proposal to build a boarder wall between the U.S. and Mexico to ongoing NAFTA negotiations between the two countries.

Daily June Comex Gold

Gold

Gold futures spiked higher on Monday in reaction to a softer U.S. Dollar and concerns that China may have started a trade war when it raised tariffs on U.S. products. Buyers may have also taken advantage of a thinly traded market due to an extended Easter holiday in Europe.

A long bias going into the start of the session may have also helped underpin the market. As reported on Friday by the Commodity Futures Trading Commission, gold speculators raised their net long position by 50,996 contracts to 172,834 contracts in the week to March 27.

Daily May West Texas Intermediate Crude Oil

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil plunged more than 2 percent on Monday, pressured by a rise in Russian production, expectations that Saudi Arabia will cut prices of the crude it sends to Asia and a deepening trade dispute between the United States and China.

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