Dollar weaker at the start of the week as G-20 comments on trade wars

Heightened fears of a switch to currency war rather than trade war

The US dollar continued its softer bias in Asian trading as investors mulled whether we are heading towards a currency war rather than a trade war. The yen benefitted the most, rising as much as 0.61% versus the greenback, closely followed by the Euro and the Kiwi. Currencies still took their cue from Trump’s Friday outrage that China and Europe were manipulating their currencies lower to the detriment of the US. The threat of a currency war on top of a trade war seems that much closer, even though Trump himself categorically said “no” when questioned about the prospects of a currency war. Treasury Secretary Mnuchin also chipped in to allay concerns.

It’s War – Trade and Currency

G-20 Communique warns risks to growth have increased

The statement released at the end of the weekend G-20 summit in Buenos Aires stated that global economic growth remains robust however it highlighted that short and medium term risks to growth have increased amid trade and geopolitical issues. It urged those involved to increase dialogue and actions to mitigate risks.

France’s Finance Minister admitted that a trade war had already started and, if the US imposes more tariffs, then the EU will have no choice but to retaliate. Adding that France is eager to work on a full renewal of the WTO, the European Commission will not make a formal proposal on trade talks until the US takes the first step by withdrawing steel and aluminium tariffs.

In a press interview after the summit, US Treasury Secretary Mnuchin commented that the US was ready to make a trade deal with China if it shows sincere willingness to make meaningful changes. He also commented that the US was closely monitoring Yuan weakness for signs of manipulation.

Japan yields firm up

There was some movement in the longer end of the Japan yield curve amid mounting speculation that the Bank of Japan may consider changes to its interest rate targets at the next meeting on July 31. 10-year yields rose 5bps to near 0.09% in the session and seemed to jolt the BOJ into action, holding its first fixed rate operation since February. The bank offered to buy unlimited amount of 10-year JGBs at 0.11%. It currently has a 1-year control curve target of 0%.

10-Year JGB Yield

Source: Bloomberg.com

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