The US dollar index dropped 0.58% on Monday, hitting its lowest level in over a month. The decline followed renewed trade tensions between the US and China.
China accused the US of breaking their recent trade deal by imposing new restrictions on AI chip exports, chip design software sales, and revoking visas for Chinese students. This accusation sparked a selloff in the dollar.
Adding to the dollar’s weakness were dovish comments from Federal Reserve officials. Fed Governor Waller suggested interest rate cuts could come later this year if inflation and labor markets remain steady. Chicago Fed President Goolsbee also said the Fed might cut rates if trade uncertainties ease.
The dollar’s losses accelerated after weak US economic data showed the May ISM manufacturing index fell to 48.5, and April construction spending dropped by 0.4%.
The euro gained 0.78%, reaching a 1¼-month high as the dollar weakened. However, the euro’s upside may be limited due to a downward revision of Germany’s May manufacturing PMI and expectations that the European Central Bank will cut interest rates by 25 basis points later this week.
The Japanese yen also strengthened, rising 0.83% against the dollar. Safe-haven demand increased amid trade tensions and positive Japanese economic data, including an upward revision of Japan’s May manufacturing PMI and stronger-than-expected Q1 capital spending.
Gold and silver prices surged, with gold hitting a three-week high and silver a two-month high. The dollar’s decline and rising trade tensions boosted demand for precious metals as safe-haven assets. Fed officials’ hints at possible rate cuts further supported metals as stores of value amid global trade and geopolitical uncertainties.
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