US Dollar Gains vs. Riskier Currencies, Falls vs. Safer Ones During Week of Risk Aversion

Trade wars and the resulting risk aversion on markets were the main themes during the past trading week. The US dollar reacted in an expected manner, rising versus riskier currencies but underperforming against safer ones.
The week actually started on a positive note as the European parliamentary elections resulted in a victory of pro-EU forces. The Great Britain pound was not thrilled, though, as Britain’s two major parties lost the elections, showing that Britons were clearly dissatisfied with how the Brexit was proceeding.
Whatever optimism the European elections brought did not last long as US President Donald Trump signaled that the United State are not ready for a trade deal with China at the present time. Responding to the previous sanctions against Chinese tech giant Huawei, China announced that it is planing to limit exports of rare earth metals to the USA, the move that can damage US high-tech industry.
Markets reacted surprisingly well to the escalations of the conflict, likely because it had been already priced in. What was definitely not priced in was the announcement of tariffs on Mexican imports by Trump. Markets reacted violently as most currencies crashed, while safer ones, like the Swiss franc and the Japanese yen, soared.
Britain’s sterling had its own problems besides the European elections and general risk aversion among investors. With Theresa May stepping down from the role of Prime Minister, it is unclear who will take the reins and what it will mean for Britain’s departure from the European Union. Possibilities range from a hard Brexit to a second referendum about leaving the EU.
The Bank of Canada was holding a monetary policy meeting this week. The decision was to keep interest rates unchanged, which was largely expected. But the Canadian dollar did not perform well despite that, likely because crude oil prices did not fare well in the current risk-off environment. Even positive surprise from Canada’s gross domestic product was unable to support the currency.
EUR/USD declined from 1.1209 to 1.1168 over the week, touching the weekly low of 1.1116. GBP/USD declined from 1.2726 to 1.2630, and its weekly low was at 1.2558. USD/CAD gained from 1.3438 to 1.3515, touching the high of 1.3564 during the week. At the same time, USD/JPY dropped from 109.32 to 108.28, retreating from the weekly high of 109.92. USD/CHF rallied from 1.0017 to 1.0098 during the week but failed to keep gains and pulled back to 1.0007.

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