US Dollar nears one year high as trade war saga drags on

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28 June 2018

thomasdodds

The US Dollar rallied sharply against both the Euro and Sterling on Wednesday, approaching its highest level in almost a year in trade-weighted terms, as concerns over a global trade war led to a renewed sell-off in risky currencies.

T
he increasing possibility of an all-out trade war between the US and China remains the biggest risk factor in the financial markets at present. Conflicting signals from both sides ramped up uncertainty on Wednesday, causing investors to continue to flock to the safe-haven Yen, which rose back above the 110 level. Worries that trade sanctions could impact Chinese businesses also caused a sell-off in the Yuan, which fell to its lowest level in six months against the US Dollar. With no signs of any form of conciliation, a further depreciation in the Chinese currency looks to be on the cards in the coming trading session.

The threat of a political crisis in Germany compounded losses for the common currency, which sank back below the 1.16 mark and perilously close to its weakest position in almost a year. Germany’s coalition government are currently locked in a row over migration, with Chancellor Angela Merkel, acknowledging that there would be no agreement before the 26 June EU summit.

Today bodes to be another fairly volatile trading session, with a number of major economic data releases likely to shift the G3 currencies. First up will be this morning’s German inflation data, which could give us a decent indication as to the strength of the more significant Eurozone numbers on Friday. Updated US GDP data for the first quarter is expected to remain unrevised this afternoon.

Carney’s Brexit warning sends Sterling back to November lows

Renewed doubts over an interest rate hike from the Bank of England in August added to losses for the Pound yesterday, which slipped by almost one percent during the London trading session to its weakest position, since November, against the US Dollar. This marked the UK currency’s largest drop in two weeks.

Bank of England Governor, Mark Carney, spoke yesterday, with his warning that there would be turmoil if an agreement was not reached before the UK leaves the EU, far from helping the Pound. Carney failed to shed any light on the possibility of an interest rate hike in the UK this year, although he did claim that British banks were fully prepared for a disorderly Brexit.

With no macroeconomic data releases in the UK today, we instead turn our attention to Friday morning’s revised first quarter growth data, which is expected to confirm that the UK economy grew by just 0.1% in in the first three months of 2018.