The US$ fell sharply on Friday, with the DXY down by around 7%, after Donald Trump added to his earlier frustrations of Fed policy and a strong dollar, when he tweeted that China and the EU both manipulate their currency. The chances of a trade war have now escalated, while at the same time geo-political tensions are also on the rise, with the US facing an internal crisis due to the ongoing Russian interference claims during the 2016 elections. With regard to trade, Angela Merkel and various other EU officials have joined China in stating that they would resist and retaliate against any US tariffs, which spurred Trump to state on TV that he could impose tariffs on all of the USD500bn of goods imported from China. The US Treasury Secretary, Mnuchin has been attending the G20 in Buenos Aires over the weekend and has indicated that he had productive talks on balanced trade although we will have to wait for further statements before the market takes any directional move from the outcome. In other markets, US Treasury yields rose sharply, which should be supportive of the dollar, as traders took the view that Trump’s comments could harden the resolve of the Fed to hike further this year in order to underline their independence from politics. Elsewhere, the metals are higher, care of the softer dollar, while stocks ended a little lower. WTI had a choppy session but finished pretty much unchanged on the day at around 68.00pb..
The coming week will get off to a quiet start, with little on the calendar for Monday, while Tuesday will warm up with the flash global PMIs. Wednesday will see the Australian CPI and the German IFO Business Climate/Expectations, while the main events of the week will occur on Thursday, with the ECB Meeting/Press Conference and US Durable Goods Orders, and then on Friday we get the US Q2 GDP. Much seems to depend on Tweets coming from the White House although there will also be the usual series of central bank speakers, with the main focus to be on Mario Draghi’s ECB Press Conference. Have a good week.
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