By Peter Nurse
Investing.com – The U.S. dollar has seen some buying in early European trade Monday, with the escalating war of words between U.S. and China over the origin of the coronavirus causing a flight to safety.
At 3:00 AM ET (0700 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 99.377, up 0.3%, while EUR/USD fell 0.4% to 1.0938. GBP/USD dropped 0.3% to 1.2462 and USD/JPY fell 0.1% to 106.81.
The latest move from U.S. officials to pin the blame on China for the outbreak of the Covid-19 pandemic came from Secretary of State Mike Pompeo Sunday, who stated there was “a significant amount of evidence” that the virus emerged from a laboratory in the central Chinese city of Wuhan, without providing any details.
This followed on from President Donald Trump’s threats Friday of fresh trade-war hostilities between the world’s two biggest economies, as Washington continued to pile the pressure on Beijing.
This comes as the evidence of the economic damage caused by the outbreak mounts – China has reported its first quarterly GDP contraction since such records began, while some 30 million Americans have filed claims for unemployment in the last six weeks.
“Trump’s weapon of choice (to win over the workers again) could be China-bashing in combination with renewed isolationism,” said analysts at Nordea, in a research note.
“The corona virus may have offered Trump a chance to ‘reveal’ that the trade deal is 100% off, and to take a renewed China aggressive stance into the election instead,” Nordea added.
The comments are at odds with the administration’s actual actions in recent weeks. It has temporarily suspended levying import tariffs on a range of Chinese products since the pandemic erupted in an effort to avoid raising prices for hard-pressed U.S. consumers.
Worries that this spat may turn into another trade war, just a few months after the first round of the trade deal between the two powers was signed ending the last damaging conflict, are hitting risk appetite.
The price of crude has also turned lower as a consequence, hitting the petrocurrencies, and the Norwegian krone in particular.
The big event of the week for Norway’s currency is Thursday’s Norges Bank meeting, but ahead of this the primary drivers of the krone remain “global prospects for the reopening of the economy, physical oil demand recovery, global asset prices and continued NOK buying by Norges Bank on behalf of the Ministry of Finance,” said analysts at Danske Bank, in a research note.
The krone weakened on Friday in the absence of Norges Bank’s purchases–there was a holiday in Norway–and that has continued Monday.
Forex – Dollar Strengthens as U.S./China Tensions Rise
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