Trade and currency war fears send Asian markets lower

Alicia Cross
July 25, 2018

The remarks, coupled with Trump's threats to impose tariffs on all US imports from China, triggered a bout of sell-offs in Wall Street and European stocks on Friday, despite good corporate earnings.

But in a more distant perspective, the sharp decline in the yuan still hampers the Chinese economy.

European Union finance chief Pierre Moscovici warned that "further trade escalation conflicts would negatively affect" all the countries involved, the United States included.

"Against the worldwide backdrop where the Fed is expected to tighten further, relaxing monetary policy could create a negative impact on the (Chinese) exchange rate", analysts at China Merchants Bank said in a note on Monday. The dollar index went as deep as 94.207 on Monday, the lowest in more than two weeks.

There was some respite for gold last week when U.S. President Donald Trump branded the dollar's strength as bad for the economy, knocking the currency from one-year highs, but the breather proved short-lived.

There's normally an inverse relationship between the value of the us dollar and commodity prices.

Dollars index fell against the basket of six major currencies to close Friday's trading session in the red at 94.41 after Trump said that a higher interest rate would pressure the competitive advantage of the U.S. Economy.

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Major exporters closed lower, with the electric appliances sector falling 1% and automakers declining 1.2% Uniqlo-owner Fast Retailing dropped 5.7%. The BOJ, in turn, offered to buy an unlimited amount of five- to- 10-year Japanese government bonds on Monday.

Crude oil prices rose over 1 percent as worries over production losses were outweighed by concerns that trade disputes would reduce economic growth and undermine global energy demand.

"China, the European Union and others have been manipulating their currencies and interest rates lower, while the USA is raising rates while the dollars gets stronger and stronger with each passing day - taking away our big competitive edge". They also said that China's financial markets had higher expectations for easing monetary policy as signs of economic slowdown emerged.

There are additional headlines being printed that could have an effect on the direction of gold prices, but only if they affect the three main influences on gold at this time - appetite for risk, raising Treasury yields and the U.S. Dollar.

Tokyo added 0.6 per cent while Hong Kong advanced 1.2 per cent and Shanghai jumped 1.5 per cent.

"Neither are we overly concerned by recent Chinese yuan weakness triggering a liquidity shock, and we expect policy makers to intervene if there's sustained downward pressure", May told Anadolu Agency.

People's Bank of China released supplementary guideline changes with respect to wealth management products operated by banks in an effective loosening of current tight controls.

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