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The USD slumps on new US taxes on Latin America and poor ISM data! (Tuesday, December 03, 2019)

The dollar traded near a one-week low versus the yen on Tuesday and near the lowest in almost two weeks against the euro, on concern about weak U.S. manufacturing data and signs of new fronts in the U.S. trade war. Recent U.S. economic data had shown signs of improvement, so a fourth consecutive month of shrinking manufacturing activity as well as an unexpected decline in construction spending put a big dent in hopes that the world's largest economy had stabilised.

Asian shares skidded this morning after U.S. President Donald Trump stunned markets with tariffs against Brazil and Argentina, recharging fears about global trade tensions, while weak U.S. factory data added to the investor gloom.

There were more worries for investors on the trade front. The U.S Trade Representative office said Monday said it may slap punitive duties of up to 100% on $2.4 billion in imports from France after concluding that the European nation’s new digital services tax would harm U.S. technology companies.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.45% in early trade, with Australian shares dropping nearly 2%, on track for their worst day in two months. Japan's Nikkei shed 1.1%.

In tweets on Monday, Trump said he would impose tariffs on steel and aluminium imports from Brazil and Argentina, attacking what he saw as both countries' "massive devaluation of their currencies." Contrary to his remarks, both Brazil and Argentina have been trying to strengthen their respective currencies against the dollar. While the South American tariffs dominated market worries on Tuesday, China's response to U.S. supporting for anti-government protesters in Hong Kong has also chilled sentiment. Markets are extremely sensitive to any good or bad news on the U.S.-China dispute front, but also the U.S. relationship with other nations as well.

China said on Monday U.S. military ships and aircraft won't be allowed to visit Hong Kong, and also announced sanctions against several U.S. non-government organisations for encouraging protesters to "engage in extremist, violent and criminal acts." Worsening the mood, data from the Institute for Supply Management (ISM) showed the U.S. manufacturing sector contracted for a fourth straight month in November as new orders slid. That erased the market cheer from upbeat Chinese factory surveys released over the past few days.

Bearish sentiment pushed bond prices higher. The yield on benchmark 10-year Treasury notes fell to 1.8172% from a U.S. close of 1.836% on Monday, and the policy-sensitive two-year yield, dipped to 1.606% from its U.S. close of 1.614%.

In currency markets, the dollar rose 0.06% against the yen to 109.04 and the euro was a touch lower at $1.1075.The dollar index, which tracks the greenback against a basket of six major rivals, was at 97.856.

Oil prices continued to rise on expectations that the Organization of the Petroleum Exporting Countries (OPEC) and its allies may agree to deepen output cuts at a meeting this week. U.S. West Texas Intermediate crude was up 0.25% to $56.10 a barrel. Gold was flat on the spot market, trading at $1,462.21 per ounce.