The US dollar ended the week with an ugly sell-off, triggered largely by news that the US will no longer exempt Chinese companies from US anti-subsidy laws, which offset a slew of largely dollar-positive data.
After starting the session up, the greenback extended its gains thanks to a string of stronger-than-expected US inflation, manufacturing, construction and consumer confidence data.
Yet news the Bush administration was imposing duties on imports of coated paper from China, reversing more than 20 years of US trade policy that classifies China as a non-market economy, sent US stocks lower, Treasury bonds higher and the dollar to over one-week lows against the euro.
While the greenback was able to retrace some of its losses against the yen in particular, it ended the New York session down across the board.
"Hope that the dollar could start a rally next week off of [Friday's] US data was quickly extinguished by news of US tariffs against China," said Michael Woolfolk, senior currency strategist at The Bank of New York. "The market's reaction demonstrates how sensitive an issue this is."
The greenback gained ground against the New Taiwan dollar on Friday, increasing NT$0.025 to close at NT$33.089.
A total of US$877 million changed hands during the day's trading. The US currency opened at NT$33.068 and fluctuated between NT$33.065 and NT$33.096.
Late in New York, the US dollar was changing hands at ¥117.87 versus ¥117.97 late on Thursday, while the euro stood at US$1.3356 from US$1.3335, according to EBS. The euro traded at ¥157.42 versus ¥157.34 late on Thursday. The dollar was at 1.2157 Swiss francs versus SF1.2175, while the pound was at US$1.9673 from US$1.9623 late on Thursday.
Friday's news came as the US Congress has recently ratcheted up pressure on the Bush administration to get tougher on trade problems with China, which alone accounted for US$233 billion of the US trade deficit last year.
"We are applying [countervailing duty laws]," a US Commerce Department official told Dow Jones Newswires on condition of anonymity on Friday. "China's economy has developed to the point we can use our subsidy laws and we are doing that."
Moments later, US Commerce Secretary Carlos Gutierrez announced at a press conference that the US had agreed to a request for import protection by the US paper industry.
The report "suggests increased potential for higher inflation and lower demand for US assets," T.J. Marta, fixed-income strategist at RBC Capital Markets said. Higher inflation would stem from higher prices consumers would have to pay due to the tariffs, he said.
"This is not a positive development for the US economy," Marta said, particularly as higher inflation would put pressure on the Federal Reserve to refrain from accommodating any potential US economic weakness due to the housing downturn.
Dollar-selling also came amid continued geopolitical tensions between the UK and Iran.
The dollar's slip came despite a slew of dollar-positive inflation and manufacturing data earlier in the session. A price index for personal consumption expenditures, excluding food and energy, rose 0.3 percent last month versus an expected 0.2 percent rise, compounding signals from the Fed recently that inflationary risks remain its biggest concern.
Shortly thereafter, news that a key measure of US manufacturing activity rebounded sharply helped the dollar maintain its gains, as did a better-than-expected consumer confidence survey from the University of Michigan.
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