Dollar Rebounds as US-China Trade Conflict Remains in Spotlight
What’s been happening?
Pound Sterling – UK Markets
In the absence of macroeconomic data releases from the UK, the British pound struggled to find demand on Monday and weakened against both the dollar and the euro. Moreover, the flight-to-safety weighed on the risk-sensitive sterling as well.
On Brexit-related headlines, citing senior members of the opposition Labour party, The Guardian reported that the Jeremy Corbyn will not be able to get enough MPs to support a Brexit deal without the promise of a second referendum, even if Prime Minister May makes a big offer on a customs union and workers’ rights this week.
US Dollar – US Markets
The US Dollar Index, which measures the dollar’s value against a basket of six major currencies, recovered a large portion of Friday’s losses on Monday as the sour market sentiment help the greenback find demand and outperform its risk-sensitive rivals.
Over the weekend, U.S. President Trump threatened, via Twitter, to raise the tariff rate on Chinese imports to 25% from 10%. Reporting on that development, Bloomberg claimed that Trump’s tweets came after his top trade advisor told him that China was “back-tracking” on the trade deal following last week’s negotiations. Nevertheless, Chinese news outlets said that China was still planning to send a delegation to Washington this week, suggesting that Trump’s remarks could be a negotiation tactic and that it was still possible for sides to come up with an agreement.
Euro – European Markets
The shared currency gathered strength against the pound sterling on the back of upbeat macroeconomic data releases and stayed resilient vs the dollar. The data published by the Eurostat showed that retail sales in March stayed unchanged on a monthly basis to beat the market expectation for a decline of 0.1%. Furthermore, the IHS Markit’s Services PMI improved to 55.7 in Germany in April from 55.4 in the previous estimate and came in at 52.8 in the eurozone to surpass analysts’ estimate of 52.5.
Finally, the Sentix Investors Confidence jumped to 5.3 in May from -0.3 in April, posting the third straight monthly increase. “This improvement is supported by an increase in situation values, which rose from 3.8 to 11.0 points. The danger of recession is thus averted, even though the expected values are still just in the negative range. However, for the fourth time in row expectations have improved to their highest level since March 2018,” said Manfred Hübner, Managing Director.
What’s coming up?
UK: The only data release from the UK will be the Halifax House Price Index. Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, is scheduled to deliver a speech on Tuesday as well.
US: The IBD/TIPP will publish its Economic Optimism Index and the FOMC will release the consumer credit change figures.
EU: Factory orders from Germany will be the only data featured in the European economic docket on Tuesday.