NEW YORK (Reuters) - The dollar rose on Friday as concern about next week’s European parliamentary elections dented demand for the euro, while the British pound dropped to a four-month low on worries about Britain’s exit from the European Union.
The dollar has been favored as a safe-haven currency even as the U.S.-China trade war escalates.
The euro has been hurt this week by Italian Deputy Prime Minister Matteo Salvini’s comments that European Union rules harm his country.
The elections will shake up the continent, leading to a relaxation of budget rules and influencing the choice of the next central bank chief, Salvini said on Friday.
“The market is a little bit concerned about European elections. It seems to be a flow into the dollar as a bastion of last resort,” said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York.
The euro briefly pared losses after the White House said President Donald Trump is delaying a decision for as long as six months on whether to impose tariffs on imported cars and parts to allow for more time for trade talks with the EU and Japan.
Sterling fell to the lowest since Jan. 15 after cross-party Brexit talks collapsed and concern grew about the impact Prime Minister Theresa May’s likely resignation would have on Britain’s exit from the EU.
The offshore Chinese yuan fell to its lowest levels since November after China said the United States must show sincerity if it is to hold meaningful trade talks as Trump dramatically raised the stakes with a potentially devastating blow to Chinese tech giant Huawei Technologies Co Ltd.
The world’s two largest economies are locked in an increasingly acrimonious trade dispute in which they have imposed escalating tariffs on each other’s imports.
“Rhetoric from both sides is getting more heated, making a U.S.-China deal seem a long way off,” Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, said in a report.
“At this point, this means there will be no high-level negotiations between the two until a potential Trump-Xi (Jinping) meeting at the G20 meeting in late June. This means the next round of tariffs will likely come into play, signaling further escalation and making a deal that much harder,” Thin said.
The Australian dollar dropped to its lowest level since Jan. 3 on the escalating trade tensions.
Data on Friday showed U.S. consumer sentiment jumped to a 15-year high in early May on growing confidence over the economy’s outlook, though much of the surge was recorded before the trade war escalation.
Reporting by Karen Brettell; Editing by Jonathan Oatis, Dan Grebler and Richard Chang