By Peter Nurse
Investing.com - The dollar pushed higher in early European trade Friday, reprising its role as a safe haven amid renewed tensions between the U.S. and China, but gains are likely to be capped by the stalemate in the U.S. Congress over the latest stimulus package ahead of the release of the official monthly jobs report.
At 3:10 AM ET (0710 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 92.995, not far removed from Thursday's two-year low of 92.483.
Elsewhere, USD/JPY was flat at 105.54, GBP/USD dropped 0.2% to 1.3121, EUR/USD was down 0.3% at 1.1842, despite German and French industrial production both handsomely beating expectations for June. Germany's exports also rose 12.7% on the month in June. The data all point to a considerable rebound in activity at the end of the second quarter.
USD/CNY gained 0.2% to 6.9637.
U.S. President Donald Trump ratcheted up already-heightened tensions with Beijing, and fueled some demand for the dollar, by announcing late Thursday that his administration was banning U.S. transactions with two popular Chinese apps, Tencent (HK:0700)'s WeChat and ByteDance's Tiktok.
Tension has been simmering between the two powers for months, with the United States unhappy with China's handling of the novel coronavirus outbreak and moves to curb freedoms in Hong Kong.
That said, these gains look temporary as sentiment has turned against the greenback due to a combination of rising U.S. coronavirus infections, a steady decline in Treasury yields, and more immediately a lack of consensus in Washington over additional fiscal stimulus.
“Dollar demand from both the investor and commercial community is in decline and the dollar is no longer the only game in town,” said ING analyst Chris Turner, in a research note.
U.S. Republicans and Democrats have so far failed to reach an agreement on the size and makeup of a new fiscal stimulus package that many think is needed to prevent the U.S. economy from losing more momentum.
Jobless claims data released Thursday still showed over 31 million Americans claiming benefits, and the non-farm payrolls release later on Friday is expected to show U.S. job creation slowed in July, with expectations for an increase of 1.6 million jobs in the month, a sharp slowdown from the record 4.8 million in June.
An area the dollar has shown some strength of late is against the Turkish lira, with USD/TRY soaring 0.9% to a new record high of 7.3036. The lira is down nearly 20% versus the dollar so far this year, despite the greenback's own problems.
The Turkish central bank has delivered 1,575 basis points of interest-rate cuts in nine consecutive steps since July 2019, in attempting to boost growth while driving borrowing costs adjusted for inflation below zero.
With the currency being hit so hard, Goldman Sachs (NYSE:GS) now expects 175 points of hikes by year end, estimating that Turkey’s central bank has spent $65 billion in the first six months of the year managing its currency.