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The dollar slid against the euro and pound as comments by US President Donald Trump risked ratcheting up trade war tensions and sparking a currency war.
In an interview with CNBC television broadcast Friday, Trump bluntly threatened to slap all Chinese imported goods with tariffs, reports BSS/AFP.
“I’m ready to go 500,” the Republican leader told CNBC, referring to the $505.5 billion in Chinese imports into the United States in 2017. “I’m not doing this for politics, I’m doing this to do the right thing for our country.”
“We’ve been ripped off by China for a long time,” he added. Artjom Hatsaturjants, research analyst at Accendo Markets, said “market sentiment soured on President Trump criticising the Fed for hiking rates and threatening to go the ‘whole hog’ on imposing tariffs on all $500 billion of Chinese imports to the US, further inflaming global trade tensions and putting at risk central bank independence”.
CNBC began broadcasting parts of the Trump interview Thursday, revealing also that he had broken with accepted practice that presidents do not comment on the Federal Reserve’s interest-rate decisions.
“Currency is now part of the trade war folks,” said Greg McKenna, market strategist at AxiTrader. “And it is worth pondering whether this is a president who is going to break with 25-30 years of tradition in not interfering in Fed policy deliberations going forward.”
Later in a pair of tweets, Trump attacked China and the European Union for keeping their currencies artificially low to gain a trade advantage, while again blasting the Federal Reserve for raising interest rates.
Market analyst Michael Hewson at CMC Markets UK said that “not only do we appear to be heading for a trade war, but it also looks like currencies are about to be brought onto the field of battle as well.”
The dollar began taking a hit on Thursday after Trump suggested that the
Fed’s policy of raising US interest rates was pushing up the dollar, in turn
hurting American exporters.
In excerpts of the CNBC interview aired Thursday, Trump said a strong
dollar “puts us at a disadvantage”, adding that the Chinese yuan “has been
dropping like a rock”.
His comments caused the dollar to fall back against a number of currencies,
including the pound which rebounded from 10-month lows versus the greenback.
Trump’s comments did not help to push the dollar down versus the yuan,
however, with the Chinese yuan dipping in its narrow trading bank.
Moreover, the Chinese central bank implemented the sharpest one-day
lowering of the trading range for the yuan in two years.
The yuan, which has fallen about 10 percent since mid-April, is expected to
extend its steady decline, providing Beijing with a buffer against punitive
US trade tariffs.
Jasper Lawler, head of research at London Capital Group, called China’s
lowering of the trading band “the starting of a currency war” in response to
the trade war.
Fears are growing over a fierce global trade war, after Trump’s imposition
of hefty import taxes on steel and aluminium from the EU, Canada and Mexico,
in addition to levies already on goods from China worth tens of billions of
dollars that have sparked retaliatory tariffs.
European stocks slid sharply in afternoon trading, buffetted by their
stonger currencies, but clawed back much of their losses. London closed less
than a tenth of a percentage point lower while Frankfurt ended the day down
nearly 1.0 percent.
Meanwhile on Wall Street, all three major indices were in positive
territory.