Dollar now in 'dangerous territory' after Trump hits out at EU and China
US President Donald Trump has stopped the dollar rally in its tracks, for now.
The dollar tumbled on Friday after Trump criticised the European Union and China for "manipulating their currencies and interest rates lower". The Bloomberg Dollar Spot Index slid as much as 0.74pc, its biggest intraday decline since March, before paring its loss to around 0.6pc.
The growing global trade dispute shows no sign of abating, with Trump saying in a CNBC interview aired on Friday that he's "ready to go" with tariffs on $500bn of Chinese imports. That hawkish rhetoric on trade, combined with the president's latest tweet on currencies, threaten to halt the dollar's rally, analysts said.
Trump's comments "are very direct and aggressive, and the market has seen that he has pushed forward regarding tariffs," said Shahab Jalinoos, Credit Suisse's head of global FX strategy. "The barrage of commentary will likely force the market to scale back long USD positions."
The decline snapped a three-day rising streak for the dollar, which had advanced amid escalating trade tensions and a weakening of the Chinese yuan. The rising risk of the dollar being used as a weapon in a trade war puts the dollar in "dangerous territory", making it vulnerable to further declines, said Shaun Osborne, Scotiabank's chief FX strategist.
The Trump administration has complained in the past about its trading partners' currencies. It's also expressed a preference for a weaker dollar, which can spur US exports.
The latest FX comments preceded a meeting this weekend in Buenos Aires of Group of 20 finance ministers, including US Treasury Secretary Steven Mnuchin.
Daniel Katzive, head of currency strategy in North America at BNP Paribas, said: "If the US administration creates the perception that they want the currency weaker, it's going to be very tempting for those global investors to reduce their exposure and the dollar will get hurt."