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Dollar Up With Escalation of U.S.-China Tensions

By Gina Lee

Investing.com – The dollar was up on Monday morning as U.S.-China tensions escalated over the weekend.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies rose 0.27% to 99.365 by 11:43 AM ET (4:43 AM GMT) as the two countries staged a war of words over the origin of the COVID-19 virus.

U.S. President Donald Trump threw the first stone on Thursday when he said that the virus may have originated in a Wuhan virology lab. He also accused China of mishandling the resultant pandemic and threatened to slap new tariffs on Beijing.

China has refuted the allegations.

Deutsche Bank (DE:DBKGn) currency strategist George Caravels told CNBC if the U.S. imposes capital controls on China, it would be dollar-negative as the move would imply outflows from greenback-denominated assets.

“If the move is politically driven it would be a clear dollar negative in our view. It would lead to a shift in reserve holdings out of the USD into EUR, JPY, GBP, gold and other reserve proxies,” he said.

Meanwhile, the USD/CNY pair was steady at 7.0622 after the CNY fell to a one-month low against the dollar on Friday.

The USD/JPY pair was down 0.18% to 106.73. 

TheAUD/USD pair lost 0.22% to 0.6404, its weakest since Tuesday. The NZD/USD pair slid 0.46% to 0.6404.

The GBP/USD pair dropped 0.34% to 1.2459.

Meanwhile, some investors saw the recent loosening of lockdown measures in some countries as positive for the dollar.

“Given the scale of the COVID-19 impact there is certainly a high risk of geopolitical tensions escalating considerably as lockdowns reverse,” Derek Halpenny, head of research at MUFG, told CNBC.

“This would clearly be another hit to global trade that would add a layer of dollar support going forward,” he added. 

 

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