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FOREX-Dollar on defensive over economy, U.S. trade war expansion

Published 03/12/2019, 06:29
Updated 03/12/2019, 06:36
© Reuters.  FOREX-Dollar on defensive over economy, U.S. trade war expansion

© Reuters. FOREX-Dollar on defensive over economy, U.S. trade war expansion

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

* Weak data stuns dollar bulls into selling

* Worries about trade friction hurt sentiment

* Trade war extends to Argentina, Brazil

By Stanley White

TOKYO, Dec 3 (Reuters) - The dollar traded near a one-week

low versus the yen on Tuesday and near the lowest in almost two

weeks against the euro, on concern about weak U.S. manufacturing

data and signs of new fronts in the U.S. trade war.

Sentiment took a hit after U.S. President Donald Trump

announced tariffs on metal imports from Brazil and Argentina.

The Australian dollar rose after the country's central bank

stuck with its optimistic outlook for the economy after leaving

interest rates on hold. Recent U.S. economic data had shown signs of improvement, so

a fourth consecutive month of shrinking manufacturing activity

as well as an unexpected decline in construction spending put a

big dent in hopes that the world's largest economy had

stabilised.

Investors are also worried about whether the United States

and China will be able to reach a deal soon to scale back their

17-month long trade war, while more tariffs on other countries'

goods would pose an additional risk to the global economic

outlook.

"The weak data forced a lot of people to give up dollar

longs and cut losses," said Daiwa Securities' foreign exchange

strategist Yukio Ishizuki in Tokyo.

"This may have run its course, but there's no reason to

chase the dollar's upside from here. Trade friction remains a

lingering threat, which is not good for market sentiment."

The dollar traded at 109.18 yen JPY=EBS on Tuesday in

Asia, close to its lowest in a week. It was quoted at $1.1075

versus the euro EUR=EBS after falling 0.56% on Monday, its

biggest decline against the single currency since Sept. 17.

Against a basket of six major currencies, the dollar index

.DXY stood at 97.905, having fallen on Monday by the most in

six weeks.

The Aussie AUD=D3 rose 0.34% to $0.6842 after the Reserve

Bank of Australia left rates at a record low of 0.75% on Tuesday

at its last meeting of the year. On Monday, the U.S. Institute for Supply Management said its

index of national factory activity fell 0.2 point to 48.1 in

November. A reading below 50 indicates contraction. Economists

polled by Reuters had forecast a rise to 49.2 from 48.3 a month

prior. Separate data showed construction spending fell in October

as investment in private projects tumbled to the lowest level in

three years. The data surprised economists who had recently raised U.S.

growth forecasts for the forth quarter due to positive data on

trade, housing and manufacturing.

Meanwhile, Trump surprised policymakers in Brazil and

Argentina with tariffs on steel and aluminium imports.

In a Monday tweet, Trump said the tariffs, "effective

immediately", were necessary because "Brazil and Argentina have

been presiding over a massive devaluation of their currencies,

which is not good for our farmers."

The comment came despite both countries actively trying to

strengthen their currencies against the dollar.

The Brazilian real BRL= rose 0.3% to 4.2230 on Monday

after Brazil's central bank conducted a spot auction to support

the currency. The Argentine peso ARS= was largely unchanged at

59.88.

In another sign of trade friction, the United States said on

Monday it planned to increase taxes on $2.4 billion in French

products including Champagne and handbags by 100%, after

determining that France's new digital services tax would harm

U.S. companies like Alphabet Inc's Google GOOGL.O and Apple

Inc AAPL.O .

Trump, citing U.S. farmers, slaps metal tariffs on Brazil,

Argentina manufacturing contracts further, tempers economic growth

hopes construction spending unexpectedly falls in October ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

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