It really is all about trade these days. How the UK will trade with the EU post Brexit is obviously the key issue closer to home, and then there is the US. How will the US and China trade amidst ongoing tariff wars? NAFTA 2.0 and will Canada make the cut? US and Europe are also at loggerheads and now Donald Trump is taking aim at the WTO, suggesting he may pull the US out as they are being “treated unfairly”. In the last 24 hours the US has been on full offensive, Trump suggesting tariffs on a further $200bln worth of Chinese goods could be imposed as early as next week, firing back at Europe saying their “No tariffs on autos” offer wasn’t good enough. The USD for its part was firmer on the day but closed the day off its highs as trade concerns began to weigh. US stocks also faced some selling as concerns crept in to the market.
In the world of currencies the Argentinian peso declined 12% despite the central bank raising interest rates to 60%, trading in Brazilian real also halted following talk of intervention and the Turkish lira was also under pressure against the greenback, heading back up towards that 7.0 level in trade yesterday. So the dollar certainly saw some demand on the back of that EM weakness, but it was not one way traffic. The pound held firm and steady, GBPUSD just holding above 1.3000 but giving up that level this morning. EURGBP continues its slide, dropping back towards .8950 as highlighted yesterday as sterling remained supported by news the very worst case scenario could be avoided.
Its month end today and models would suggest there will be USD selling into later fixes and while the dollar index is slightly weaker this morning, EURUSD and GBPUSD are both slightly lower. The euro will be looking towards retail sales and inflation figures, headline CPI inflation expected to remain static at 1.1% and the euro is unlikely to be rocked unless we see a weaker print. Another point of concern is Italy, who are hitting headlines once more. I wouldn’t be too shocked to see some downgrades for the region and that could also pose some downside risk for the single currency. It’s a quiet enough afternoon and month end rebalancing will likely be the focus for the day. As always we’ll be headline watching and with trade, Brexit, Italy and some ECB speakers later in the day we’re sure to see something to add some volatility to markets.