On Monday, the U.S. dollar tumbled to record lows going back five weeks as it slipped against other major currencies following U.S. President Donald Trump’s tweets about increasing tariffs levied on Chinese goods.
Volumes also eased and thinned out as markets in London and Tokyo remained closed for holidays.
The Tuesday morning has seen the dollar index; a gauge that measures the Dollar’s performance against the top six major currencies remained steady at 97.527.
More often, whenever there is an escalation in trade tensions pitting the U.S. against China, traders tend to support the U.S. dollar. The underlying reason has been that investors look at the U.S. as being in a stronger position of handling the trade war than its rival.
But the same isn’t applicable to the Japanese yen. The yen normally reaps positively in case of geopolitical or financial strain, with Japan currently the world’s largest creditor state.
As such, the USD dropped almost 0.2% to trade at 110.88 to the yen, dipping at one time to 110.29- the lowest in a five-week period.
According to analysts at Morgan Stanley, the USD/JPY pair had crossed the key support level at 110.70. The analysts noted that if the pair closes below this level, then it would have slipped into a technical bearish trend.
However, the trend could reverse if trade rhetoric turned out to be less escalatory in nature as talks are set to resume this Friday. A move in this direction could help the JPY/USD pair push higher.
The Chinese yuan slipped nearly 1% as the trade tensions impacted hard. It dropped to 6.80 per dollar, the currency’s lowest level in several weeks. Both the Australian dollar (A$) and the New Zealand dollar (NZ$) struggled against the U.S. dollar as were the Turkish lira and Mexican peso.
The Australian dollar and the Sterling have, however, steadied and slightly surged in Tuesday trading following distinct the central bank cut interest rates. The pound steadied against the U.S. dollar, staying at near $1.31 as Brexit talks resumed.