Investing.com -- The dollar was mixed within relatively narrow ranges Friday at the start of European trading, after the Chinese yuan defied some weak factory gate inflation data to end the week on a stable note.
In Europe, the euro recovered most of its Thursday losses after the eruption of the latest political crisis in Italy, where Matteo Salvini, the head of the right-wing populist Lega party, called for new elections in a move to cement his power. The reaction was more violent in the bond and stock markets, where Italian assets sold off dramatically.
By 3:30 AM ET (0730 GMT), the euro was at $1.1188, up 0.2% from overnight lows. It was relatively unmoved by data for French industrial production in June, which fell by a greater-than-expected 2.3%, consistent with the dismal pattern in neighboring Germany.
The British pound remained under pressure ahead of second-quarter gross domestic product figures, which are due at 0830 GMT. Prime Minister Boris Johnson was reported on Thursday to be planning a general election in early November, days after the country’s scheduled departure from the EU.
The dollar index, which tracks the greenback against a basket of currencies, was effectively unchanged at 97.403
The latest rant by President Donald Trump against the strength of the dollar and the Federal Reserve via Twitter on Thursday has had no lasting effect on the market, beyond reminding participants of the risk of intervention to depress the dollar.
“A currency war has not erupted – at least, not yet. But the danger is real,” said ING analyst Benjamin Cohen. “Relations between the world’s two largest economies could go from bad to much worse.”
Cohen noted that the Trump administration’s labeling of China as a currency manipulator may lead China to respond in kind to save face, through measures such as a ban on the export of rare earth elements vital for high-tech manufacturing.
Figures released earlier Friday showed China’s producer price inflation index turning negative for the first time in three years, stoking fears that it will ‘export deflation’ to the rest of the world as it did between 2012 and 2016.
The yuan, however, stayed well within the range it had traded in this week. On the mainland it fell by less than 0.1% to 7.0503 to the dollar, while in the less regulated offshore market, it rose fractionally to 7.0757. The discount to the People’s Bank of China’s fixing narrowed as the central bank pegged the yuan at a new 11-year low of 7.0136.