Dollar Tumbles As Trade War Ignites Growth Fears

(RTTNews) - The U.S. dollar tumbled against major currencies during the week ended March 7 amidst an extended sell-off on Wall Street triggered by the escalation in the trade war and a weak labor market update.

The greenback inter alia plunged against the euro, the British pound, the Australian dollar and the Japanese yen. The Dollar Index, which measures the U.S. Dollar's strength against a basket of 6 currencies, also recorded a massive plunge to four-month lows. Anxiety about the effects of the tariffs on economic growth and inflation in the U.S. weighed heavily on sentiment.

The Dollar Index, a measure of the Dollar's strength against a basket of currencies comprising the euro, the British pound, the Japanese yen, the Canadian Dollar, the Swedish Krona and the Swiss franc closed trading 3.5 percent lower at 103.84 on March 7 versus 107.61 a week earlier. The week's trading range was much wider, oscillating between the high of 107.41 recorded on Monday and the low of 103.46 recorded on Friday.

Data released on Monday had showed the ISM Manufacturing PMI falling to 50.3 in February from 50.9 in January. The reading pointed to a slower growth in the manufacturing sector, missed forecasts of 50.5 and weakened sentiment for the dollar. The ISM Services PMI released on Wednesday however pointed to a faster growth in the services sector as it unexpectedly increased to 53.5 in February from 52.8 in the previous month, beating forecasts of 52.6.

Data released by the U.S. Bureau of Labor Statistics on Friday showed the American economy added 151 thousand jobs in February versus a downwardly revised 125 thousand in January and market forecasts of 160 thousand. The unemployment rate which was seen steady at 4 percent however rose to 4.1 percent in February. The weak labor market data further dampened sentiment for the greenback.

Fed Chair Jerome Powell's reiteration on Friday that the Fed was in no hurry to cut interest rates failed to retrieve the dollar.

The euro surged 4.40 percent against the U.S. dollar during the week ended March 7 that also saw another widely expected rate cut by the European Central Bank. The ECB on Thursday cut its key interest rates by 25 bps but hinted at a possible pause in further rate cuts. Data released on Monday had showed flash inflation readings for February at 2.4 percent. Markets had expected it to drop to 2.3 percent from 2.5 percent in January. From the level of 1.0375 on February 28, the EUR/USD pair jumped to 1.0832 by March 7. The weekly trading ranged between the low of 1.0381 recorded on Monday and the high of 1.0890 touched on Friday.

The sterling rallied 2.73 percent against the greenback during the week ended March 7 amidst the trade tariff related turbulence and expectations of a cautious monetary policy stance by the Bank of England. The GBP/USD pair rose to 1.2920 on March 7 from 1.2577 a week earlier. The sterling's weekly trading range was between $1.2577 recorded on Monday and $1.2946 recorded on Friday.

The Australian Dollar also added 1.58 percent against the greenback during the week ended March 7 amidst hawkish minutes of the Reserve Bank of Australia and a better-than-expected GDP reading. The minutes revealed that another rate cut by the Reserve Bank of Australia was not imminent. From the level of 0.6207 recorded on February 28, the AUD/USD pair rallied to 0.6305 in a week's time. The pair which had dropped to a low of 0.6187 on Tuesday climbed to touch the week's high of 0.6365 on Thursday.

The USD/JPY pair slipped 1.71 percent during the week ended March 7 as it closed at 148.03 versus 150.60 a week earlier. The pair ranged between the high of 151.34 recorded on Monday and the low of 146.95 recorded on Friday. The yen's strength came amidst growing bets of a rate hike by Bank of Japan and an unexpected decline in consumer confidence.

On the horizon are job openings data as well as consumer price and producer price inflation update due from the U.S. in the current week. Interest rate decisions by the Bank of Japan, Federal Reserve and Bank of England are due in the following week. Amidst anxiety ahead of these and the persisting uncertainty in the global trade tariff environment, the DXY has decreased further to 103.76. The EUR/USD pair has rallied to 1.0842 whereas the GBP/USD pair has increased to 1.2940. The AUD/USD pair has also moved up to 0.6325 whereas the USD/JPY pair has declined to 147.08.