Chinese officials will be in Washington this week to hold consultations with the U.S. ahead of high-level trade talks in October.World Economyread more
(Recasts; updates prices) NEW YORK, June 3 (Reuters) - The U.S. dollar fell on Monday after St. Louis Federal Reserve President James Bullard said an interest rate cut "may be warranted soon," given the rising economic risk posed by global trade tensions as well as weak U.S. inflation. Bullard said that while the Fed cannot respond to every change in the rapidly evolving trade feud, recent events like the unexpected announcement of new tariffs on Mexican imports have created "an environment of elevated uncertainty... that could feed back to U.S. macroeconomic performance" as the global economy slows. Also on Monday, a national survey showed U.S. manufacturing activity slowed in May to its weakest pace in more than two years as factory managers raised concerns about a trade war between the United States and China. The mounting trade tension has prompted investors to move out of riskier assets like U.S. stocks and into safe-havens like the yen and franc. Against a basket of six major currencies, the
dollar was 0.63% lower at 97.131 , though it is still up
about 1% this year. "Though we think the recent warning shot towards Mexico could be resolved, the road ahead on the global trade front is likely to remain challenged until the G20 later this month," wrote Mark McCormick, global head of foreign exchange strategy at TD Securities. "This backdrop leaves us taking a sell-on-rally posture with dollar/yen."
The yen hit its strongest level against the dollar
since Jan. 10, at 107.88, last down about 0.31% from the prior session close.
The franc has risen close to levels at which the
Swiss National Bank has traditionally intervened to keep the
currency weak. Against the euro it rallied more than
half a percent to 1.112 francs, its strongest since July 2017, though it was last weaker at 1.116. Against the dollar it was at its strongest since March 27, with the dollar 0.99% weaker at 0.991 francs. "While the Swiss franc has appreciated strongly in recent weeks, much of that gain is due to the wave of risk aversion sweeping across markets and we need to see further substantial gains before the central bank has to step in," said Manuel Oliveri, a currency strategist at Credit Agricole in London. The Swiss National Bank, which pursues a monetary policy of negative interest rates and currency intervention, has traditionally intervened when the franc has risen to around 1.10 francs per euro, but low inflation and trade tensions suggest the franc has to gain far more from current levels.
(Reporting by Kate Duguid and Saikat Chatterjee Editing by Sonya Hepinstall)