- US dollar takes a hit in risk off markets.
- Mexico risk, U.S. and Chinese data in focus.
Forex on Friday traded in response to President Trump’s unexpected tariff threat to Mexico which was announced in early Asia sending Us stocks down sharply and making for a risk-off theme across financial and commodity markets. U.S. yields played havoc on the dollar as investors started to factor in rate cuts for the second half of the year. The DXY ended Friday 97.73 and is bleeding to a fresh low of 97.61 while U.S. ten-year yields dropped from 2.18% to 2.13% – (the lowest since September 2017).
As for data, U.S. personal incomes and spending both rose more than expected in April and the core PCE inflation gauge posted a modest rebound in April rising 0.25%; “that follows a tepid +0.03%, +0.04% and +0.05% in Jan, Feb and March respectively, providing some early support for the Fed’s view that recent low inflation has been transitory,” analysts at Westpac argued.
As for the Mexico risk, the Trump administration has underlined their demands since the initial Tweet from Trump and Mexico’s president on Saturday hinted his country could tighten migration controls to defuse the threat to impose tariffs on Mexican goods. Mexico’s president said he expected “good results” from talks planned in Washington next week – which should be risk-positive, but judging by the stock index futures performances today on the open, investors are staying with the risk-off theme, likely taking a heed of warning from last week’s Chinese economic data still, whereby China’s official manufacturing PMI fell to 49.4 indicating that activity is contracting.
- EUR/USD climbed from 1.1130 to 1.1170.
- GBP/USD firmed up within a volatile trade to 1.2644 from a cent lower.
- USD/JPY dropped from 109.00 to 108.28 for a five-month low – (The yen was the best performer on the day).
- AUD climbed from 0.6905 to 0.6935/40, despite the risk-off mood and the RBA this week.
- NZD also rose, from 0.6495 to 0.6547.
- AUD/NZD dropped from 1.0630 to 1.0600.
Key notes from Wall Street