USD: “Unpresidented” act dampens upward momentum - MUFG
The US dollar has weakened modestly in the Asian trading session undermined in part by further evidence of a rise in political tensions between the US and China since Donald Trump was elected to be the next President notes Lee Hardman, Currency Analyst at MUFG.
Key Quotes
“The Pentagon has stated that a Chinese vessel unlawfully seized a small unmanned vehicle on Thursday while the USNS Bowditch was collecting it in a routine operation 50 nautical miles northwest of Subic Bay in the Philippines. It prompted President elect Trump to tweet that it was an “unpresidented” act as he accused China of stealing the US navy research drone in international waters. The US government has secured an understanding with China that the drone will be returned but it did not impress President elect Trump who tweeted “we should tell China that we don’t want the drone they stole back- let them keep it!” The overseas edition of the People’s Daily has replied in response that China’s capture of the drone was legal because it was conducting “military operations in sensitive waters”.”
“The fresh incident follows hot on the heels of the recent diplomatic row between the US and China after President elect Trump accepted a phone call from Taiwan’s president Tsai Ing-wen after winning the US election and has since questioned as well “why we have to be bound by a One China policy unless we make a deal with China having to do with other things, including trade”.”
“The comments from President elect Trump will keep the market nervous that tensions are likely to escalate further between the US and China during his term potentially posing downside risks to global growth. However, at the current juncture we would not expect the initial negative impact on the US dollar against the other major currencies to be sustained in the near-term. The lure of higher US yields is more likely to remain the key driver for a stronger US dollar in the year ahead although it will be subject to volatility driven by the more unpredictable nature of policies under President Trump.”