Dollar struggles to regain ground on US-China trade standoff
The dollar recouped some of its losses on Tuesday, supported by reports that the U.S. administration may ease planned tariffs, although investor caution lingered over whether a meaningful de-escalation in the U.S.-China trade conflict was in motion.
The administration of U.S. President Donald Trump is set to take steps on Tuesday to soften the impact of his automotive tariffs. The United States and China in recent days seemed to have softened their respective stances, with Washington signalling openness to reducing tariffs and Beijing exempting some U.S. imports from its 125% levies.
Still, U.S. Treasury Secretary Scott Bessent said that it was up to China to de-escalate on tariffs - the latest in a slew of conflicting signals over progress on trade talks between the world's two largest economies. The U.S. dollar index, a measure of the greenback's value relative to a basket of foreign currencies, strengthened 0.15% to 99.23 after falling 0.58% the previous day. It remained on track for its biggest monthly drop since November 2022, as tariff tensions stoked fears of a global economic slowdown and undermined confidence in U.S. assets.
"Our data show persistent bond and equity outflows last week despite the recovery in U.S. asset prices," said George Saravelos, head of global forex research at Deutsche Bank. "What we think matters for the dollar is what foreign investors are doing and, so far, based on our analysis the evidence is that they remain on a buyers' strike on U.S. assets," he added. A buyers' strike occurs when investors refuse to purchase certain assets due to negative sentiment. The euro was down 0.25% at $1.1393, but remained on track for its largest monthly gain against the dollar in more than two years as investors flee U.S. assets and search for alternatives in Europe. "There are many structural factors that have supported the dollar in the past decades. I don't think they will get destroyed so easily," said Stephen Jen, chief executive officer and co-chief investment officer at Eurizon SLJ Capital. "The euro-dollar can go higher to 1.20-1.25, but that has always been the fair value according to our calculations." The greenback climbed 0.45% against the Swiss franc to 0.8237 and gained 0.33% to 142.46 yen, with trading subdued due to a holiday in Japan.
"Given the conflicting signals, I think a deal (between U.S. and China) is very unlikely in the near-term and China might be preparing for a protracted trade war," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA). Analysts noted that the yen could strengthen further, as a global economic slowdown may prompt major central banks - including the U.S. Federal Reserve - to implement deeper rate cuts, narrowing yield differentials with Japan. Sterling hovered near a three-year top at $1.3399. Against a basket of currencies, the dollar steadied at 99.25, having fallen 0.6% in the previous session. In Canada, the loonie eased 0.05% to C$1.3840, after Prime Minister Mark Carney's Liberals retained power in the election on Monday, but fell short of the majority government required to help him negotiate tariffs with Trump.
Investors were also bracing for a week packed with U.S. economic data, which may provide some early indication on whether Trump's trade war is hitting home. The U.S. jobs report is scheduled for release on Friday, and will be a key driver for markets, with preliminary first-quarter growth figures and core PCE data - the Fed's favoured inflation gauge - due ahead of that. Elsewhere, the Australian dollar weakened 0.15% after hitting an over four-month top of $0.6450.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Observer
14 hours ago
- Observer
Effect of declining oil prices on Oman's budgetary obligations
US President Donald Trump's recent tariff-related decisions have unleashed a wave of economic and political impacts for developed and emerging countries alike. These decisions have negative repercussions on global oil markets, leading to a decline in revenues for countries that rely on exports of this commodity as a primary source of national income. Globally, average global oil prices fell to $73 per barrel during the first quarter of this year, down from $83 per barrel during the same period last year. This poses a challenge for many oil-producing countries, including the Sultanate of Oman. According to recent analysis, Omani oil export revenues fell by approximately RO 200 million. A part of this decline was offset by an increase in tax revenues from RO 27 million during the corresponding quarter in 2024 to RO 72 million this year, thanks to improved tax collection. However, the current second quarter is expected to be more difficult, with the average oil price expected to fall to $66 per barrel. Everyone knows that the Omani government seeks to diversify sources of income and develop alternative economic sources to oil, while simultaneously committing to repaying its external debt, which amounted to approximately 14.3 billion Omani riyals by the end of the first quarter of this year, 2025, compared to approximately 15.1 billion Omani riyals by the end of the same period in 2024. The Sultanate of Oman is committed to repaying its public debt, which amounts to approximately RO 2.5 billion annually. This represents a significant burden on the state budget, which is affected by the decline in global oil prices. According to the financial data report, Oman's public revenues decreased by approximately 7 per cent by the end of the first quarter of this year, recording approximately RO 2.635 billion, compared to RO 2.826 billion during the same period last year, due to the decline in global oil prices. Net oil revenues constitute a major item in the country's financial budget, along with gas revenues and followed by non-oil revenues. The government works to manage the country's various financial obligations related to the economic and social spheres each year. At the same time, the government is working diligently to reduce the country's public debt to an appropriate level relative to the gross domestic product. This helps the country improve its credit rating, which has become highly valued by international financial institutions. This also helps attract more foreign investment, especially as the country is now approaching the list of global investment-attracting countries. Indeed, the Sultanate has succeeded in attracting investments over the past years, which has contributed to the improvement of the country's financial, economic, and social conditions. As is well known, the decline in oil prices for oil exporting countries has a direct and significant impact on their public budgets. This leads to difficulties in their ability to meet financial obligations, both internally and externally, due to their economies' heavy reliance on oil revenues. In Oman, it has negative repercussions on the fiscal budget, as oil constitutes more than 65-70% of government revenues. Any decline in prices directly leads to a decline in revenues, causing a budget deficit. This forces the government to cover the deficit through borrowing or drawing from reserves. It also results in the postponement or reduction of development projects and a slowdown in the growth of the non-oil economy. HAIDER AL LAWATI The writer is a Muscat-based economic analyst who previously worked for CBO and OCCI.
Observer
14 hours ago
- Observer
UK fund groups stand by hybrid working rules
Despite the increase in the number of firms in the financial sector, in particular, bringing an end to working from home, several big fund management groups, such as Aberdeen, Jupiter L&G among others, in the financial district of London (known as the 'City') have decided to maintain the status quo with their hybrid working policies. However, the world's largest asset manager, BlackRock, has called most of its senior staff back to the office five days a week. The firm has asked around 1,000 managing directors globally to return to the office full-time, putting it at odds with most of its peers. The US-head-quartered firm, which employs approximately 22,000 staff globally, first mandated back in 2023 that all staff be in the office four days a week. Its latest decision puts it at odds with other asset managers, some of which only require staff to work from the office two days a week. 'Nothing has changed on this for Jupiter,' a spokesperson for the FTSE, 250-listed group said. Jupiter's policy requires staff to work from the office three days a week. Chief executive Matthew Beesley said earlier this year that it had 'no plans at all to go back to a mandated five days a week office attendance'. DWS, the asset manager majority-owned by Deutsche Bank, said it had made no changes to its policy. A spokesperson for the group said London staff must work from the office two days a week. Royal London Asset Management has a similar approach – its staff are expected to work in the office at least 50 per cent of the week. Meanwhile, Federated Hermes and Aberdeen have stuck with their requirement that staff be in the office at least three days a week. Legal & General Asset Management also has no plans to change its current hybrid working policy, a spokesperson for the firm said: 'We have been consistent in our view that we are continuing to deliver for our clients with our people working in a hybrid fashion. Our expectations are for colleagues to be in the office between two and three days on average each week.' However, others have recently altered in-office requirements. A spokesperson for Fidelity International said it requires staff to be in the office for at least eight days each month. This will increase in September to 12 days. Meanwhile, US bank State Street Global Advisors implemented a group-wide policy back in 2023 that staff work in the office four days a week. 'State Street has implemented a hybrid work approach of employees working four days per week in the office, balanced with the flexibility of working four weeks per year fully remote,' said a spokesperson. 'Managers are accountable for ensuring their teams comply with these expectations and are empowered to offer ad-hoc flexibility to employees as needed.' Other banks, including Barclays, Deutsche Bank, Moelis and UBS, have also rolled back their hybrid working policies. JPMorgan had said back in January all its 320,000 staff must be in the office five days a week. It has seven UK offices, including its London HQ, technology hubs in Glasgow and Bournemouth and regional offices in Edinburgh, Manchester, Leeds and Bristol. It employs 14,000 people in Canary Wharf and in the financial district of London. Citigroup has bucked the trend by allowing staff to work at home two days a week. Jane Fraser, the Chief Executive Officer, who has run Citi for almost four years, views hybrid working is helpful for recruitment. But in keeping with the push by other American banks, Goldman Sachs and Bank of America have long asked staff to be in the office full time. Andy Jalil The writer is our foreign correspondent based in the UK
Observer
2 days ago
- Observer
The EU can play it cool with Trump's trade threats
Other governments have so far taken three main approaches to dealing with Donald Trump's trade threats. China hit back hard at the US president's tariffs and got him to back down partly. Canada also retaliated and avoided some of the pain Trump inflicted on other countries. Meanwhile, Britain cut a quick deal that favoured the United States. None of these is a model for the European Union. The 27-member group is not China. Though its bilateral goods trade with the United States last year was worth 70% more than between the US and the People's Republic, the EU is not an autocracy that can outpunch Trump. If it antagonises the US president, he might up the stakes by pulling the rug from under Ukraine and undermining the EU's defences. American hard power gives it what geopolitical strategists call 'escalation dominance'. The EU is not Canada either. Ottawa was able to hang tough because its people were infuriated that Trump was trying to blackmail Canada into becoming part of the United States. While anti-Trump sentiment is high in the EU, politicians who are sympathetic to him, such as Poland's new president, can still get elected. On the other hand, the EU is not the United Kingdom. Both are at risk from Russia's invasion of Ukraine. But the EU trades seven times more goods with the United States than Britain does - so Washington has more to lose if economic relations break down. There is another way for the EU to handle Trump's threats: play it cool. That is more or less what the bloc is doing. It involves neither escalating the conflict nor accepting a bad deal. It means being open to a good agreement if the US lowers its demands, but willing to play the long game if it does not. One reason to buy time is to help Kyiv. The longer the EU has to prepare its own support package for Ukraine, which should include getting it a lot of cash, the less the damage if Trump ultimately cuts off all US aid to the country. The president's own vulnerabilities may also increase over time. Just look at the spectacular end of his alliance with Tesla boss Elon Musk. The fragile US trade truce with China may break down causing more financial turmoil, making Trump less keen to pick a fight with the EU. If the Supreme Court stops him using emergency powers to impose tariffs, his negotiating position will be weaker. And tariffs could hurt the US more than its supposed victims, by pushing up inflation and crimping growth. A QUICK DEAL? Trump has zig-zagged in his trade threats and actions against the EU. The current state of play is that there are 50% tariffs on US imports of steel and aluminium from the bloc, a 25% tariff on cars and 10% so-called reciprocal tariffs on most other goods. And so they're trying to be the first and the best to get there, which is why everybody's throwing so much money at it without any clear sense of, you know, The US president has threatened to jack up these reciprocal tariffs to 50% if there is no deal by July 9. He is also looking at more 'sectoral tariffs', including on pharmaceuticals and semiconductors. While the EU has complained to the World Trade Organization (WTO), it has delayed its own retaliation. Its negotiators accept that they are unlikely to overturn the reciprocal tariffs, the Financial Times has reported. The bloc still aims to avoid the sectoral ones. Those on cars and any on pharmaceuticals would hurt it the most. It has dangled the possibility of buying more US equipment and natural gas to get a deal. An agreement on those lines could be good for the EU. It needs to beef up its defences and eliminate its purchases of Russian gas. While it would be best to have its own arms and energy supplies, buying more from the US makes sense as an interim measure. An important nuance, though, is that the EU should reserve the right to take action against the reciprocal tariffs after the WTO issues its verdict, says Ignacio Garcia Bercero, a former senior EU trade official. Such a pact would involve quite a climbdown by Trump. True, arms and gas purchases would narrow the US goods deficit with the EU, which was $236 billion last year. But his administration has a host of other complaints including the bloc's value-added tax and food safety standards as well the digital taxes that some of its members impose on tech giants. It is hard to see the bloc agreeing anything in those areas, says Simon Evenett, professor of geopolitics and strategy at IMD. BACK TO WAR? Although the US side described last week's trade talks with the EU as 'very constructive', discussions could easily break down. The question then is how the bloc would react if Trump imposed higher reciprocal tariffs. The EU has so far imposed no countermeasures. Though it has agreed to tax 21 billion euros of US imports in response to the steel and aluminium tariffs, it has delayed these until July 14 to try to get a deal. The European Commission, its executive arm, is also consulting on taxing a further 95 billion euros of US imports in response to the car tariffs and the reciprocal ones. But added together, these tit-for-tat measures would be equivalent to only a third of the 379 billion euros of EU imports subject to Trump's tariffs. Some analysts think the bloc needs to be tougher. One idea is to crack down on American services, where the US had a 109 billion euro surplus with the EU in 2023. Another is to activate its 'anti-coercion instrument ', which would allow retaliation against US companies operating in the bloc. Yet another is to threaten to ban exports of critical goods, such as the lithographic equipment necessary to make semiconductors. Extreme events may require extreme responses. But for now, the EU should keep its cool. It should not kid itself that it is stronger or more united than it is. It should remember that Trump may get weaker with time. And it should never forget Ukraine. — Reuters Hugo Dixon The writer is Commentator-at-Large for Reuters. He was the founding chair and editor-in-chief of Breakingviews.
