- USD slips after Trump backs out of signing G7 communique.
- Easing Italian political concerns also weaken Dollar vs Euro.
- USDCAD up as Trump threatens tariffs on automobile imports.
© The White House
The US Dollar dipped Monday on rising fears over a so called trade war, after President Trump instructed his aids not to sign the G7 communique, a statement of intent made at the end of every meeting and usually signed by all participants.
The withdrawal came on the back of a tirade of tweets from in which President Trump criticised what he saw as unfair trade practices between allies - but mostly with Canada and the European Union.
President Trump also criticised Canadian Prime Minister Justin Trudeau personally after the latter made a speech in which he indicated Canada would fight its corner, saying Canadians were "polite" but would hit back if "pushed around".
"Despite the G7 summit managing to underwhelm the very low expectations and President Trump threatening with auto tariffs, the spillover into risk assets was rather limited, with Asian FX stable overnight and EUR/USD modesty up (despite the fact that EUR is sensitive to the threat of car tariffs)," Petr Krpata, chief EMEA strategist at ING Group.
Trump questioned the fairness of the America's outsized contribution to the defence of NATO countries, particularly when compared with Germany's contribution. He also drew attention to the latter's huge trade surplus and EU tariffs on US goods that are larger than those imposed by America on Europe.
Later Trump made veiled threats of tariffs on car imports and highlighted Canadian levies of 270% on US dairy exports to Canada. USD/CAD rose after the comments on fears it would hit Canadian automotive exports, which are around 15% of total exports, even though the USD was down overall for the session. At the time of writing the pair was trading at 1.2964.
"Although the overhang of global trade wars is still very much alive, the global FX price action this week will be driven by the stream of key event risks: (a) US–North Korea Summit (Tue); (b) FOMC meeting (Wed), (c) ECB meeting (Thu)," says Krpata. "The first two in particular pose some downside risk to the already fragile risk environment via the potential risk off channel or prospects of even higher USD funding costs respectively. All this suggest a generally supported USD."
The Dollar Index, which measures the performance of the Dollar versus a trade-weighted basket of counterparts, was trading at 93.36, down by 0.19% from the previous session, at the time of writing. The Euro-to-Dollar pair washigher at the time of writing, trading at 1.1815.
"The inflationary impact of the tariffs can push the dollar up. However, this hinges on the assumption that the Fed continues to control inflation as usual," says Ulrich Leuchtmann, head of G10 FX strategy at Commerzbank.
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