Dollar rallies on as investors flee risky assets

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20 June 2018

thomasdodds

The escalating trade dispute between China and the US dented investor sentiment further across bond and equity markets.

T
he escalating trade dispute between China and the US dented investor sentiment further across bond and equity markets. Chinese willingness to retaliate attributed to the recent appetite for safe-haven currencies, primarily the US Dollar and Japanese Yen. However, there were some interesting countertrend moves in the Mexican Peso and the Brazilian Real, both of which managed to end slightly up against the Dollar, in a sign that perhaps traders are beginning to see value in these battered currencies.

The Dollar trade-weighted index rallied throughout the Asian session yesterday and into the London open, before giving up some of its gains in New York trading to end up at 0.3%. All major currencies fell against the Dollar, save for the aforementioned Real, Peso and Yen.

Brexit negotiations weigh heavily on Sterling

The Pound continued its string of losses, weakened by further bad news on the Brexit negotiations. Word got out that the EU is seriously considering recognising that a hard Brexit with no deal is a real possibility.

A dovish speech from ECB President, Mario Draghi, reiterating that the central bank is in no hurry to raise rates sent the Euro lower early in London trading. The Euro fell as the gap between US and German rates widened to, yet another, multi-decade high. The common currency did manage to stage a mild recovery later, as risk sentiment improved somewhat in equity markets.

Housing sector data out of the US confirmed that, so far, housebuilding was not significantly impacted by higher interest rates, and the US economy is on track to post a strong 4% growth rate in the second quarter.

No major economic releases are expected today, and markets will keep a close eye on political headlines around the US-China trade dispute while they expect the Bank of England meeting on Thursday.