The dollar rose on Tuesday, edging toward a six-month high hit last week, as the latest development in a growing trade conflict between the US and its commercial partners prompted selling in emerging market currencies. The Mexican peso and Canadian dollar posted the biggest losses against the US dollar as trade war concerns rose. Other emerging market currencies also fell in tandem with the peso such as the South African rand.
The US dollar, on the other hand, remained supported by a brighter economic outlook that has made an interest rate hike by the Federal Reserve next week a near-certainty. "The story of US data outperforming data around the world, especially in Europe, the UK, and Japan remains intact for now," said Brad Bechtel, managing director, at Jefferies in New York.
But he noted that external factors that have influenced the dollar such as the Italian political crisis and trade tariffs have already built into the currency price. "The US dollar is going to be a bit rangebound for now with a firm undertone," said Bechtel.
In mid-morning trading, the dollar climbed 0.3 percent to 94.28 against a currency basket. It hit 95.02 last week, its highest since early November and has risen nearly six percent since mid-April. The dollar got a bit of boost after a US service sector index as measured by the Institute for Supply Management rose more than expected in May to 58.6.
The Mexican peso, meanwhile, fell to a more than one-year low against the dollar, which was last up 1.6 percent at 20.3968 pesos. Against the Canadian dollar, the US currency rose 1.0 percent to C$1.3060.
Mexico said it will impose a 20-percent tariff on US pork imports after US President Donald Trump slapped tariffs on steel and aluminium. The dollar's strength was also helped by the euro's lingering weakness with latest headlines offering little evidence Italy would stick to a path of fiscal restraint. The euro fell 0.3 percent against the dollar to $1.1665.
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