Dollar Recovers as Trade Tensions Ease
What’s been happening?
Pound Sterling – UK Markets
The British pound weakened slightly against both the dollar and the euro on Monday but the currency’s price action seemed to be a technical correction of last week’s strong gains amid a lack of significant macroeconomic data releases.
On Brexit-related headlines, a spokeswoman for the European Commission said that the UK had not raised with the EU side the idea that the Brexit bill would be lower in case of a no-deal exit. "The EU's position all commitments that were taken by 28 member states should be honoured, also and especially in no-deal Brexit scenario," the spokeswoman reiterated.
Speaking at a press conference at the G7 summit, British Prime Minister Boris Johnson said that he was “marginally more optimistic” about their chances of leaving the EU with a deal following his meetings with EU leaders last week. "The backstop has got to come out, that point has landed with the EU," Johnson noted. When asked what he will do if parliament tries to block a no-deal Brexit, Johnson told reporters that it was the job of parliament to get Brexit done.
US Dollar – US Markets
With both sides adopting a softer stance on the US-China trade dispute, the Greenback recovered the losses it suffered against its major rivals on Friday. According to Reuters, China's Vice Premier Liu He, China’s chief trade negotiator, on Monday said that China was willing to resolve the dispute through "calm" negotiations. Responding to these comments during his press conference on the last day of the G7 summit in France, US President Donald Trump said that he was confident that China was sincere about wanting a trade deal. The 10-year US Treasury bond yield reversed its direction and recovered a large part of Friday’s losses and the US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, gained more than 0.8% on a daily basis.
Meanwhile, the data published by the US Census Bureau on Monday showed that new orders for manufactured goods increased 2.1% on a monthly basis in July and came in better than the market expectation of 1.1% to provide an additional boost to the currency. “ Excluding transportation, new orders decreased by 0.4 percent. Excluding defence, new orders increased by 1.4 percent. Transportation equipment, also up two consecutive months, drove the increase, $5.7 billion or 7.0 percent to $86.3 billion,” the publication further revealed.
Euro – European Markets
The shared currency erased last Friday’s gains it posted against the dollar but was able to rise modestly vs the pound sterling. However, markets are likely to stay away from the euro while waiting to see how the European Central Bank (ECB) will respond to disappointing data and heightened concerns over a recession in the eurozone. ECB Governing Council member and Slovak central bank chief Peter Kazimi on Monday said and added that the bank’s stimulus should be decided upon the ‘broadest agreement.’ There were no macroeconomic data releases from the euro area on Monday.
Meanwhile, US President Trump said it was likely for his administration to make a trade deal with the EU without imposing tariffs on European car imports.
What’s coming up?
UK: The Bank of England MPC member Tenreyro will be delivering a speech on Tuesday.
US: The Consumer Board will release its Consumer Confidence Index and the Richmond Fed will publish its Manufacturing Survey.
EU: Second-quarter GDP figures from Germany will be featured in the European economic docket on Tuesday. The ECB Governing Council member De Guindos will be delivering a speech as well.