• 139 days Could Crypto Overtake Traditional Investment?
  • 143 days Americans Still Quitting Jobs At Record Pace
  • 145 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 148 days Is The Dollar Too Strong?
  • 149 days Big Tech Disappoints Investors on Earnings Calls
  • 150 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 151 days China Is Quietly Trying To Distance Itself From Russia
  • 152 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 156 days Crypto Investors Won Big In 2021
  • 156 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 157 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 159 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 159 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 163 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 163 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 164 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 166 days Are NFTs About To Take Over Gaming?
  • 166 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 169 days What’s Causing Inflation In The United States?
  • 170 days Intel Joins Russian Exodus as Chip Shortage Digs In
Russia Considers Nationalizing Foreign Businesses

Russia Considers Nationalizing Foreign Businesses

The Russian government is reportedly…

The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030

The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030

According to Citigroup, the metaverse…

Fake Reviews Go All The Way To The Top

Fake Reviews Go All The Way To The Top

Monitoring service Fakespot Inc found…

  1. Home
  2. News
  3. Breaking News

Strong U.S. Dollar Attracts Fresh Safe Haven Bids

Dollar

In the midst of all the talk about trade wars, both real and imagined, one slugger has emerged as the unlikely winner—the U.S. dollar.

The dollar has inched 0.62 percent higher on Monday trading, adding to a 0.4 percent gain on the previous trading session as an important watershed moment in the unfolding tit-for-tat trade tariffs approaches.

Investors are jittery about July 6, the deadline when Washington is due to impose $34 billion in tariffs on Chinese exports.

(Click to enlarge)

Source: Investing.com

China, which has found itself at the epicenter of a heated trade dispute between the U.S. and its trading partners, is expected to respond in kind by imposing its own tariffs on U.S. exports. An all-out showdown between the world’s largest economies is likely to put the skids on global trade and investments as well as convulse financial markets. Related: Three Key Takeaways From Mexico’s Elections

Investors have been scooping up the greenback as a safe haven bet as evidenced by dollar long positions, which edged higher for the second week running.

The dollar was able to extend its gains even further after data from the Institute for Supply Management (ISM) showed that manufacturing activity had surged during the month of June.

The ISM manufacturing index for the month clocked in at 60.2, an improvement compared to 58.7 in May. An ISM reading above 50 indicates an expansion in manufacturing activity. The metric is an important indicator of economic health because manufacturing contributes about 12 percent to the U.S. economy.

The positive ISM reading though can be interpreted in other less benign ways. It’s likely that the index climbed due to supply chain disruptions in steel and aluminum industries after Trump’s punitive tariffs took effect.

In his first trade offensive against American allies in May, president Trump slapped hefty tariffs on steel and aluminum imports from the EU, Canada and Mexico. The ISM supplier deliveries sub-index climbed to 68.2 last month, a 6.2-point increase that points to a lengthening in suppliers’ delivery times.

Lengthening supply times are taken as a sign of increased manufacturing activity, which clearly might not be the case this time around.

Weaker Euro=Stronger Dollar

The dollar’s rise is also being aided by a weakening euro. The dollar strengthens when the euro weakens and vice-versa because the euro makes up nearly 60 percent of the dollar index.

Political tensions in the eurozone as well as low interest rates are to blame.

Unlike the U.S., which is currently under a period of monetary tightening, the European Central Bank decided to leave interest rates at historic lows leading to a rout for the regional currency.

The euro has slipped six percent against the greenback over the past three months alone.

(Click to enlarge)

Source: Investing.com

With all the ongoing trade snafu, president Trump might inadvertently have achieved his wish to have a stronger greenback.

Related: “Father Of The Web” Fights Back Against Internet Centralization

In January, the president declared:

"The dollar is going to get stronger and stronger and ultimately I want to see a strong dollar."

But an overly strong dollar is not necessarily a good thing. Unlike corporate equities where rising values are almost always welcomed (by the longs), rising currencies can be just as problematic as falling ones. First off, it makes buying dollar denominated commodities more expensive which can be harmful to exports. And a strong dollar is almost always bad news for gold prices.

On an investment level, it can wipe out the positive effects of tax cuts by introducing severe FX headwinds. That’s especially true for companies with large exposures to foreign markets, of which many top performers do have. Falling earnings tend to precipitate stock selloffs, not to mention falling or stagnating dividends.

By Alex Kimani for Safehaven.com

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment