US Dollar Remains Sticky Amidst Chinese Retaliation Acts

. 3 min read

Overview:

  • Investor pour flows into traditional safe-haven assets
  • Euro drops below 1.12 handle over fears of a recession.
  • WTI Crude oil drops for the second day in a row after Chinese declarations of trade policy intentions.

Highlight:

The British Pound continues to make a steady recovery against the greenback. Better-than- expected inflation and retail sales data gave investors some comfort, helping the GBP/USD to bounce back from its lowest levels since January 2017. The pair, however, remains vulnerable to the growing threat of a no-deal Brexit and has lost nearly 4.75% of its value over this year.

US DOLLAR

Chinese authorities have signalled that they intend to apply retaliatory measures to nullify recent US trade tariffs. This may mean digging the toolkit to remote control a measured devaluation of the Yuan. It also means that there will be an intensification of global trade tensions. The market is hoping “constructive” talks between the two parties due in September yield more amicable results. In the meantime, an inversion of the US Treasury curve, normally associated with a global economic recession, sent stock market indexes into a panic sell mode. Currency market watchers are seeing a shift in preference to traditional safe-havens.

The US will impose tariffs on imports of wigs, human hair, fake beards and frog meat. They will drop Bibles from the tariff list however.

BRITISH POUND

After a surprising uptick in inflation, UK registered another unexpected increase in retail sales. In the three months to July, retail sales rose by 0.5%. The pound got a temporary boost moving above the 1.21 handle. There are however no great expectations for a higher high from here as the main drivers – regional growth, Brexit and interest rate outlook are still at play.

EURO

EUR/USD finally cracked below the 1.12 handle and remains near this week’s low. A series of lacklustre economic data finally caught up with the currency in a thin market. However, fear of a global economic meltdown and ongoing tussle between the US and China are likely to keep investors cautious.

CANADIAN DOLLAR

USD/CAD is trading within touching distance of 1.33 as USD bulls are hesitant to venture further north over global trade concerns. US retail sales and the Philly Fed Manufacturing Index came in above market estimates this morning. Yet, the US Dollar Index hardly budged. Global market sentiment is still cautious over an escalation of tension between China and the US. With crude oil prices remaining very choppy we expect the pair to remain volatile.

AUSTRALIAN DOLLAR

The Australian economy added 41,100 jobs in July, which helped to raise their dollar to 0.678215 against the greenback. The dour US/China trade unrest isn't doing the Aussie any favours, yet the Antipodean currency is holding its own.

FEATURED CURRENCY

Trade tension climbed to a new and nail-biting level after Chinese officials telegraphed their intentions to counter recent US trade measures. USD/JPY retreated from the session high and is now looking for clear trading impetus. The mood is back to risk-off and we expect the pair to trade inside the weekly range with a bias to the downside.

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