(Updates prices)
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Sept 2 (Reuters) - The euro plunged to a 16-month
low on Monday as the impact of Washington and Beijing's trade
war on the European economy dominated investor sentiment while
the pound tanked on speculation that Britain may be headed for a
general election.
Germany's export-dependent manufacturing sector remained in
contraction in August as weaker demand pushed companies to scale
back production and cut jobs. With its sales abroad hit by a worsening trade climate, a
global economic slowdown and an increasingly chaotic run-up to
Brexit, most of Germany's growth momentum and consequently
Europe's growth outlook has cratered.
The United States began imposing 15% tariffs on a variety of
Chinese goods on Sunday -- including footwear, smart watches and
flat-panel televisions -- while China started putting new duties
on U.S. crude oil. "There are very few places in the currency market world to
hide if trade tensions escalate, with emerging market currencies
and the euro particularly vulnerable because of their trade
linkages," said Timothy Graf, head of macro strategy at State
Street Global Advisors in London.
The euro was 0.3% lower versus the dollar EUR=EBS at
$1.0958 after falling below $1.10 on Friday for the first time
since May 2017.
The euro's more than 4% slide this year is a big reversal in
fortunes for the single currency after ECB chief Mario Draghi
first indicated a likely pullback in its extraordinary stimulus
policies in a speech in Sintra in June 2017.
But since then an escalation in trade tensions between the
United States and China, plus a growing swathe of government
bond yields sinking into negative territory thanks to a
worsening economic outlook, has sapped demand for the euro.
Money markets were assigning a bigger probability of a 20
basis point rate cut on Monday by the ECB this month.
Though latest futures data indicated that net hedge fund
positions in the single currency are broadly at neutral levels,
they are quite some way from record high levels seen last year.
The pound led losers against a broadly firm greenback after
British media said Prime Minister Boris Johnson had called an
emergency cabinet meeting and was preparing to call a general
election.
Against the dollar GBP=D3 , the British currency tanked 1%
to $1.12046 and weakened 0.6% vs the euro EURGBP=D3 to 90.93
pence. GBP/
YUAN PRESSURE
With U.S. markets shut for a holiday on Monday, investors
remained on the sidelines while looking to see what expansionary
policies the European Central Bank and the U.S. Federal Reserve
could unveil this month.
The Chinese yuan was fragile after registering its biggest
monthly slide in 25 years in August as the trade tensions
intensified.
While non-deliverable forwards for the Chinese currency on
one-year maturities CNY1YNDFOR= held below a January 2017 high
of above 7.24 yuan per dollar hit last month, daily volatility
has picked up, indicating that traders are wary about the
outlook for the currency.
"The trade war appears to have ushered in a complex and
prolonged geopolitical & economic rivalry between the U.S. and
China, which is unlikely to subside on either side of the 2020
US elections," strategists at BMO said in a note.
Broader market sentiment remained on the back foot too, with
net positions in the Japanese yen creeping up to the highest
levels in nearly three years.
Elsewhere, the dollar index .DXY which measures the
greenback's performance against a basket of six major currencies
firmed 0.2% at 99.13.
Japan Yen short positions https://tmsnrt.rs/2kcyvHR
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