Currencies: Dollar Slumps As Trade Tensions Rattle Traders

The U.S. dollar moved lower against other major currencies on Monday, as investors digested signs of rising trade tensions following the Trump administration’s decision last week to implement tariffs on steel and aluminum imports from the European Union, Canada and Mexico.

Don’t miss: Here’s what’s next for Nafta, Mexico’s peso and Canada’s dollar

What are currencies doing?

The ICE U.S. Dollar Index DXY, -0.18%  slipped 0.4% to 93.383, paring back after a slight gain logged on Friday. The WSJ Dollar Index BUXX, -0.14% which measures the U.S. currency against a broader basket of rivals, fell 0.3% to 86.96.

Read: Why a bet against the dollar makes sense as trade-war fears fester

The euro EURUSD, +0.3002%  jumped to $1.1721 from $1.1659 late Friday in New York, while the British pound GBPUSD, -0.2772%  climbed to $1.3361 from $1.3350 on Friday.

Versus the Japanese yen USDJPY, +0.18% the greenback strengthened modestly to ¥109.54, compared with ¥109.52 late Friday.

The Australian dollar AUDUSD, +1.0173%  was one of the best performers on Monday, rallying to $0.7650 from $0.7569 on Friday after better-than-expected retail sales data. New Zealand’s NZDUSD, +0.7162%  was also stronger against its U.S. rival, gaining to $0.7039, compared with $0.6981 late Friday in New York.

The greenback slipped versus the Canadian dollar USDCAD, -0.1544% last fetching C$1.2924, down from C$1.2954 late Friday.

Versus Mexico’s peso USDMXN, +0.3205% the buck was stronger, buying 19.9837, compared with 19.9390 pesos Friday.

What is driving the market?

The rush out of the dollar came as concerns over global trade grew, after a round of U.S.-China trade talks broke down over the weekend without an agreement.

Read: China warns U.S.: Trade agreements are off if tariffs are imposed

Separately, finance ministers from Canada, France, Germany, Italy, Japan and the U.K. issued a rare rebuke to the U.S. at a Group of Seven meeting on Saturday. They made clear their “unanimous concern and disappointment” about President Donald Trump’s decision to place tariffs on metals imports from his major allies.

Tariffs and trade are also likely to feature high on the agenda when the leaders of the G-7 nations — including the U.S. — hold talks in Canada on Friday and Saturday.

The euro was benefiting from continued political calm in Italy. The populist coalition of the 5 Star Movement and the League was sworn in on Friday and is expected to win a confidence vote in both houses of parliament later this week. Italy had been without a government since the general election in early March produced an inconclusive result, raising the prospect of a fresh vote in the summer that would be viewed as a referendum on euro membership.

Meanwhile, in the U.K., the pound was boosted by better-than-expected construction data.

What are strategists saying?

“I think the dollar is likely to suffer [in the week ahead.] Friday’s better-than-expected nonfarm payrolls notwithstanding, I think trade policy will dominate sentiment towards the U.S. during the week and cause the currency to fall,” said Marshall Gittler, chief strategist at ACLS Global, in a note.

“The counterpart of the dollar weakening because of a trade dispute would be the euro strengthening. Especially as the risk from Italy recedes, I think the euro could rebound,” he added.

What else is in focus?

U.S. factory orders for April dropped 0.8%, exceeding the anticipated contraction of 0.5%.

In other assets, U.S. Treasury yields inched higher, with the 10-year note TMUBMUSD10Y, +1.88%  last yielding 2.917%.

Equities started the week on a stronger foot, and all major U.S. stock indexes were in the green.

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