Trade war fears boost safe haven currencies

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25 June 2018


The escalating trade dispute between China and the US rattled currency investors and sent them scrambling for safe haven currencies, primarily the Swiss Franc and the Japanese Yen.

he Euro also benefited from economic data that finally surprised to the upside, after many weeks of disappointments. Sterling benefited less than may have been expected from the hawkish Bank of England surprise, where Chief Economist Haldane joined the two other hawks in calling for an immediate hike. However, it still managed to eke out a small gain against the Dollar.

The unexpected winner for the week was the Mexican Peso, which bounced back on optimism that the expected victory of the leftist candidate in the Presidential election will not damage the country’s economic prospects.

Economic data will be key again in Forex markets this week, as a slew of key data is released in the US, Europe and China. We will pay particular attention to US and Eurozone inflation data, out on Wednesday and Thursday respectively.

Major currencies in detail


The Bank of England kept rates unchanged, as expected. However, the number of dissenters in the Monetary Policy Committee voting for an immediate hike rose to three, as Chief Economist Andy Haldane joined the hawks. It’s the first dissent by a BOE Chief Economist since 2011, and as such it carries more weight than most other individual votes. We think this is a significant shift that opens the door for an August hike. We are a bit puzzled by Sterling’s muted reaction to this news, and are starting to see significant potential for a summer rally in Sterling, particularly if any positive news materializes on Brexit negotiations.


The key PMI indices of business activity provided the first unambiguously positive economic news out of the Eurozone in some time. The composite index saw its first rise in five months. This is the best leading indicator of Eurozone economic performance, and its rise validates our view that the slowdown will be both shallow and short-lived. We now look forward to the flash inflation data. If the core number manages to hold on to its unusually large May increase, we could start to see the beginning of a medium-term bottom in the Euro-dollar cross.


The week started with the rattling announcement by Trump that he was considering 10% tariffs on another $200 billion worth of Chinese goods, and the corresponding threat of retaliation from China. Asian stocks had a very difficult week, though risk assets elsewhere did better. Notably, the US Dollar failed to benefit from the uncertainty, despite its safe-haven status, and retreated modestly.

As in the Eurozone, inflation data out on Friday should be a focus for currency traders, who will be looking to confirm the general upward trend in price pressures over the past few months.