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Dollar falls as the trade dispute between China and the US escalates

  • The dollar held steady against the yen on Monday, taking a breather after last week's rally.
  • Given the simmering U.S.-China trade tensions, however, some analysts say the dollar's gains against the yen may be limited in the near term.
  • Analysts say another focus is the potential for foreign investment by Japanese institutional investors at the start of Japan's new financial year.
Dan Kitwood | Getty Images

The dollar fell for a second straight session on Monday in generally thin trading as China imposed extra tariffs on U.S. products, escalating a dispute between the world's biggest economies.

Volume was light as some European markets are closed for the Easter Monday holiday.

"Broader market sentiment was dampened by ongoing trade tensions between the U.S. and China," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.

China has slapped extra tariffs of up to 25 percent on 128 U.S. products including frozen pork, as well as on wine and certain fruits and nuts, in response to U.S. duties on imports of aluminum and steel, China's finance ministry said.

The tariffs, to take effect on Monday, match a list of potential tariffs on up to $3 billion in U.S. goods published by China on March 23.

The dollar lost 0.14 percent at 90.02 against a basket of six major currencies, backing off from a one-week high of 90.178 set last Thursday.

The dollar traded down 0.50 percent against the yen at 105.73, after rising more than 1.5 percent last week for its biggest weekly gain since September 2017.

The U.S. currency rose against the yen last week, helped by signs China and the United States were working behind the scenes to avoid a full-blown trade war, as well as hopes for a diplomatic breakthrough over North Korea's nuclear program. The dollar's gains versus the yen were viewed as short-lived given the tension between the world's two largest economies.

The Trump administration is expected to release a list of other products to be targeted with tariffs by Friday. The U.S. move will likely trigger a second round of countervailing penalties from China, which could include strategically-vital product categories such as soybeans and aircraft, Karl Schamotta, director of global product & market strategy at Cambridge FX in Toronto, said.

Beyond the potential trade war, the markets are also focused on U.S. data this week, led by the non-farm payrolls report for March. The reports should determine the path for future interest rate increases, analysts said.

The euro, meanwhile, fell 0.15 percent at $1.2303.

Although expectations of an exit from the European Central Bank's stimulus had boosted the euro since last year, the common currency has been in a holding pattern since hitting a three-year high of $1.2556 on Feb. 16, with its March 1 low of $1.21545 seen as an immediate support level.