The U.S. dollar traded into narrow ranges against most currencies on Tuesday. This was due to renewed worries about diplomatic tensions between the United States and China. Rising coronavirus cases also dampened the risk appetite.
The greenback stood at 107.35 yen in Asia on Tuesday, following a 0.4% gain in the previous session. And the dollar traded at 0.9419 Swiss francs.
Meanwhile, the euro maintained its gains against the greenback and the pound. This was while traders awaited data on German investor sentiment to better gauge the pace of Europe’s recovery from the pandemic crisis.
Currency trading has been subdued as a recent resurgence of new coronavirus infections has caused some countries to place new restrictions on business activity.
Additionally, FX Markets face a threat from retaliations between Washington and Beijing over civil liberties in Hong Kong, access to U.S. financial markets, and territorial claims in the South China Sea.
Junichi Ishikawa, the senior foreign-exchange strategist at IG Securities, noted that the focus has shifted to whether or not the next round of pandemic lockdowns will be large enough to damage economic growth.
Furthermore, the Hong Kong problem could potentially lead to new trade friction. Negative developments on either front could cause stocks to decline. It could also drive some safe-haven flows to the greenback and the yen.
The United States and China are waging diplomatic battles on several fronts. According to a senior State Department official, President Donald Trump’s administration plans to scrap a 2013 agreement between the U.S. and Chinese auditing authorities.
Furthermore, the United States has hardened its stance against China’s claims in the South China Sea. It is taking steps to end China’s attempts against Hong Kong’s special legal status. Specifically, it is protesting against Beijing’s security law for the former British colony.
How did other currencies fare?
The euro stood at $1.1346, below the one-month high reached on Monday. The currency traded at 90.36 pence against the pound, holding onto a 0.9% gain from the previous session.
The Australian dollar changed slightly at $0.6935. Some Australian states also re-imposed coronavirus restrictions, and negative sentiment caused the aussie to lower. The New Zealand dollar also declined to $0.6530.