Bad signs for the top economy

Bad signs for the top economy

The dollar has fallen from a two-year high amid trade tensions with China.

A drop in the value of the dollar from a two-year high Friday following a decrease in orders for US-made capital goods represents further evidence that manufacturing and the broader US economy are slowing, in large part due to the US-China trade dispute.

The weaker-than-expected data added to a fall which began Thursday following a report that showed manufacturing activity hit its lowest level in almost a decade in May.

The reports suggest that a sharp slowdown in US economic growth is underway, which could affect the dollar’s safe-haven status.

The dollar index was down 0.27% at 97.587. It was also 0.80% off a two-year high of 98.371.

Over the past two years, some analysts had speculated that a trade war with China would be a boon for the US dollar – both because the currency serves as a safe haven in times of uncertainty, and because, out of the two nations, the US was likely to be hurt the least.

China denounced US Secretary of State Mike Pompeo Friday for fabricating rumors after he said the chief executive of China’s Huawei Technologies Co Ltd was lying about his company’s ties to the Beijing government.

Trade tensions and weak data have fueled interest rate cut expectations by the US Federal Reserve. Money markets now broadly expect one rate cut by October followed by another by January 2020.

The weakness of the dollar helped boost sterling from a 4-1/2-month low, though the rally was mostly driven by UK Prime Minister Theresa May’s announcement that she will resign amid ongoing Brexit negotiations.

The euro was also stronger on Friday, up 0.24% to $1.121, benefiting from the dollar’s weakness and from early results in the EU parliamentary elections.


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Paul Imison
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