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US dollar climbs as China tensions spark risk aversion

currency-newsUS dollar climbs as China tensions spark risk aversion
The US dollar rose yesterday as growing tensions between the US and China spooked global markets, thereby driving investors to the safe-haven ‘greenback’.

Today, the pound is trending higher. GBP/EUR has edged up to €1.1977 while GBP/USD has risen above $1.22 and GBP/CAD has climbed to C$1.5693. GBP/AUD and GBP/NZD are also heading up, firming to A$1.7604 and N$1.9499, respectively.

Service sector PMIs for the UK, the eurozone and the US are all out today. Could signs of slowing growth prompt more risk aversion?


What’s been happening?

The safe-haven US dollar gained ground yesterday as an escalation in US-China tensions triggered widespread risk aversion. US House Speaker Nancy Pelosi headed to Taiwan, with China viewing the visit as a provocation and threatening retaliation.

Later on, signs that US labour demand is cooling capped the ‘greenback’, but hawkish comments from the Federal Reserve’s Mary Daly provided support.

This strength in the US dollar weighed on the euro due to EUR’s negative correlation to USD. European investors also remain concerned about a possible eurozone recession and the worsening gas crisis.

Meanwhile, the pound fell against all but its weakest rivals. A lack of data left GBP open to losses, while political instability in the UK pressured Sterling somewhat.


What’s coming up?

This morning the final services PMIs for the UK and the eurozone are due out. If they confirm slowdowns in these two economies then both the pound and the euro could suffer.

An expected stall in euro area retail sales may add to the downward pressure on EUR, while hesitancy ahead of the Bank of England’s (BoE) interest rate decision tomorrow could limit movement in the pound.

Aside from risk sentiment, the US dollar may be driven by the ISM services PMI and the latest factory orders figures. As both data releases are expected to show a decline, the ‘greenback’ could face headwinds this afternoon.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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