Trade war takes a dark turn as currency manipulation takes center stage
August 5, 2019
China responded over the weekend to Trump's announcement last week of new trade tariffs on Chinese goods by letting the renminbi weaken by almost 2%. Chinese authorities also directed state-owned enterprises to stop buying US agricultural goods including soybeans. The dollar is mixed as FX markets weigh the impacts of a trade war on the US economy with the dollar's safe-haven status.
Later today: July PMI and non-manufacturing ISM
Tuesday: JOLTS Job Openings
Wednesday: MBA Mortgage Applications, Consumer Credit
Thursday: Jobless Claims, Wholesale Inventories
Friday: July PPI
August 5, 2019
EUR/USD 1.1176 GBP/USD 1.2170 USD/CAD 1.3222 AUD/USD 0.6769 USD/JPY 106.04 USD/CNH 7.0904 USD/ILS 3.4872 USD/MXN 19.5756 USD/CHF 0.9747 USD/INR 70.7325
The dollar weakened vs. the euro and safe-haven currencies (Japanese yen and Swiss franc) but gained vs. most other currencies. Equity markets are bracing for heavy losses as investors price in a significant weakening of the US economy due to the escalating trade war. The markets are now pricing in between one and two more Fed rate cuts before the end of this year.GBP
The British pound is flat vs. the US dollar as the British government continues to press the European Union to re-open Brexit negotiations. The pound will struggle to gain strength as long as the Bank of England keeps rates low, Brexit uncertainty persists, and political instability becomes more probable as speculation builds that a snap election will be called before the October 31 Brexit deadline.EUR
The euro extended its recovery from the two-year low against the dollar reached last week despite market views that a trade war will hurt Germany’s export oriented economy. Speculative long US dollar positions are likely being unwound as traders reassess in light of the latest trade war news. The yield on the German 30-year bond fell below zero for the first time and the 10-year bond now yields -0.501%, below the European Central Bank's negative deposit rate.CAD
The Canadian dollar weakened on lower oil prices. The US-China trade war has dampened expectations for growth in the demand for oil.ASIA/PACIFIC
Escalating tensions in the US-China trade dispute saw China weaken the renminbi above the psychologically important 7.
The Indian rupee lost 2.3% over the past two trading sessions. The government in India scrapped the long-held autonomy of the Kashmir region aggravating relations with Pakistan.
The plunging yuan sparked risk-off appetite with local currencies in South Korea, Australia and New Zealand weakening while the Japanese yen, which is seen as a safe-haven currency, strengthened.