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FX Monthy Outlook: Trump visit to Asia increases demand for foreign assets and currencies

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President Trump’s latest trip to the Far East provided reasons for markets to adopt a more ‘risk-on’ posture - an appetite for higher risk. Factors including the delay of highly-anticipated punitive trade tariffs on China and potential drops in interest rates by some central banks has helped emerging market currencies recover from recent declines.

What’s in play

UK PM change: Boris Johnson, ex-Foreign Secretary and Mayor of London, won the vote among conservatives to be appointed next Prime Minister. A firm Brexit supporter, Johnson is anticipated to continue working towards the original Brexit mandate. Although the pound fell for a second quarter losing about 6 cents, it has not been affected by PM changes.  

Trade tariffs with China: After President Trump’s visit to the G20 and his meeting with Xi Jinping in Japan, the delay of further retributive tariff actions by the US somewhat allayed currency market fears. Markets turned to a more risk-on posture, with safe haven assets including gold, the yen and the Swiss franc being sold off.


What’s next

Fed expected to cut rates: The Federal Reserve is expected to announce a quarter percent interest rate cut during a meeting at the end of this month, with further cuts anticipated before year-end. The dollar is expected to weaken.

The ECB and BoE will meet: The European Central Bank will meet on July 25 and the Bank of England will meet on August 1. Christine Lagarde will take over from Mario Draghi as head of the European Central Bank. If the ECB matches the Fed’s rate cuts, there will be minimal impact on the euro.


What happened

The Dollar Index fell: The Dollar Index (a measure of the value of the US dollar relative to the value of a basket of currencies of key US trading partners) lost 1.7% last month—the largest monthly loss since January 2018. The decline was attributed to concerns regarding potential trade dispute outcomes with China and the prospect of Fed interest rate cuts.

Trump visited North Korea: The historic visit to North Korea following the G20 Summit left critics wondering if any concessions were made with leader Kim Jun Un. World currencies including emerging market currencies were unaffected by the visit.

Punitive tariffs with Mexico were not realized: Tariffs threatened by the US against Mexico for failures by the country to adequately assist in slowing illegal immigration were not implemented. After a dip in value, the peso recovered.

Oil prices jumped: Rumors of a potential change in supply from OPEC caused the price of the West Texas Intermediate benchmark for US oil (WTI) to increase about $5. Following the downing of a US military drone and attack on two tankers in the Persian Gulf, oil prices fluctuated, with the net value increase bolstering Canadian, Australian and New Zealand dollars.

India cut interest rates: The Reserve Bank of India lowered interest rates by a quarter percent. The Rupee remained unchanged as the decrease was expected.

 

Contact us

If you’d like to discuss your specific situation or explore the merits of active FX management, contact your SVB FX Advisor directly, or email us at fxadvisors@svb.com.


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©2019 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of the Federal Reserve System. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq: SIVB). SVB, SVB FINANCIAL GROUP, SILICON VALLEY BANK, MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group, used under license.

This article is intended for US audiences only.

This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.

Opinions expressed are our opinions as of the date of this content only. The material is based upon information which we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such.

About the Author

Laurence Hayward is the Senior Advisor for International Markets and Risk for Silicon Valley Bank in its Central Region. He is responsible for helping clients mitigate foreign exchange risk, including trade finance and international cash management.

Hayward has over 40 years in the foreign exchange and interest rate markets, with experience as a banker, broker, trader and marketer / advisor. He has worked in London, Abu Dhabi, Dubai, Singapore, Hong Kong, New York, Houston, Dallas, Santa Clara and Denver for Barclays International, First National Bank of Boston, Tullett and Tokyo Forex International, Gulf International Bank, NationsBank, Bank One, Cambridge Mercantile Corp. and Silicon Valley Bank. He has made presentations to the national AFP, the New Orleans AFP, the Houston TMA. Fort Worth Chamber of Commerce, the University of Colorado at Boulder, the KPMG Global Enterprise Institute in Denver, and many bank presentations on the subjects of foreign exchange, international risk, FASB accounting rules and quant analysis. He has also been published in the Wall Street Journal, the New York Times, and many periodicals.
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