US Dollar hovers around two week low as trade concerns weigh

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26 June 2018

thomasdodds

A continuation of trade war concerns caused the Euro to edge back towards the 1.17 level against the US Dollar yesterday, although it retraced some of its gains on Tuesday morning.

T
he high level of uncertainty surrounding future trade agreements with the US and the rest of the world has buffeted the greenback in recent sessions, and caused investors to flee to the safety of the Yen and Swiss Franc. There were some fairly mixed messages out of the US to keep markets guessing yesterday. US Treasury Secretary Steven Mnuchin claimed that trade restrictions would apply to all countries that were ‘trying to steal our technology’. There was, however, contrasting comments from the Trump administration’s trade and manufacturing adviser, Peter Navarro, who stated that any investment restrictions would only target China, and no other countries.

Ongoing developments on the trade front are likely to continue to shift the US Dollar in both directions ahead of an expected announcement from President Trump on his next policy moves regarding China on 6th July.

Pound well supported after hawkish Bank of England

Sterling remained well supported as markets opened for the week on Monday, edging modestly higher by around one third of a percent against the US Dollar. Investors have taken on a more optimistic view of the currency following last Thursday’s Bank of England meeting, which saw Chief Economist Andy Haldane unexpectedly joining Ian McCafferty and Michael Saunders in voting for an immediate interest rate hike. Gains for the Pound have, however, been tempered by ongoing Brexit uncertainty, and the ongoing resistance to amenable terms from the European Union.

With economic news light on the ground today, Sterling traders will instead look to a couple of speeches from Bank of England members Haskel and McCafferty this morning. The next major piece of data in the UK will be Friday’s GDP numbers.

Eurozone inflation key data for the Euro this week

Macroeconomic news out of the Eurozone was broadly supportive of the common currency yesterday. The latest Expectations and Business Confidence indexes from IFO were stronger-than-expected, following on from last week’s better-than-expected PMI news as the first real signs of an uptick in activity that we’ve seen in a number of weeks in the Euro-area.

The main focal point of trading in the Eurozone this week will be Friday’s preliminary inflation data, which is expected to show that headline consumer price growth increased back to 2% this month. Until then, we expect to see the Euro driven largely by news on US-China trade policy and little else.