• The dollar firmed against a basket of currencies on Friday and hit a more than 14-month high against the yuan, with markets gripped by worries over escalating trade tensions between the United States and China.
• China vowed on Thursday to retaliate if the U.S. acted on a threat to raise tariffs on the Asian nation’s exports, after U.S. President Donald Trump instructed his trade officials to look at increasing tariffs to 25 percent from 10 percent on $200 billion in Chinese imports into the United States.
• China's offshore yuan, which has been under pressure for months due to worries over the trade rift, weakened to 6.8975 per dollar CNH=D3, its lowest since May 15, 2017, before steadying slightly to last trade at 6.8888.
• Trade tensions were seen driving demand for the U.S. currency, with a slide by the pound providing an extra lift.
In foreign exchange, the dollar index against a basket of six major currencies extended its overnight gains and rose to a two-week high of 95.209.
• The euro was slightly lower at $1.1584 following a loss of 0.6 percent the previous day.
• Bubbling concerns over Italy weighed on the euro, with the country’s bond yields rising to two-month highs following media reports of a government meeting on the budget revived market concerns about tensions within the ruling coalition.
• The dollar added 0.1 percent to 111.73 yen, having gained about 0.6 percent this week. The dollar received a big boost against the yen earlier this week after the Bank of Japan tweaked its monetary policy but retained its commitment to keeping interest rates low.
• Financial markets are now looking to the July jobs U.S. report due later in the session for immediate cues.
• According to a Reuters survey of economists, nonfarm payrolls likely rose by 190,000 jobs in July after increasing by 213,000 in June.
• With trade tensions generating investor demand for safe haven assets, the 10-year U.S. Treasury note yield pulled back slightly to 2.995 percent from a 10-week high above 3 percent brushed midweek.
• The EUR/USD could revisit 1.16-1.1620 before resuming the drop as the hourly chart is showing a bullish divergence of the relative strength index (RSI).
The hourly RSI has also breached the descending trendline in favor of a minor corrective rally. However, the overall bias is bearish as indicated by the downward sloping Bollinger bands.
• Japan is considering creating a sovereign wealth fund to invest in U.S. infrastructure projects and U.S.-Japan joint projects in third countries and will float the idea at two-way trade talks in Washington next week, the Nikkei daily reported on Friday.
Tokyo is seeking ways to counter U.S. pressure for a bilateral free trade agreement (FTA) and head off a rise in tariffs on its auto exports when Economy Minister Toshimitsu Motegi meets U.S. Trade Representative Robert Lighthizer in Washington on Aug. 9.
• Mexico’s central bank held its main interest rate steady on Thursday and trimmed its outlook for economic growth this year, as it vowed to maintain a “prudent” policy stance due to risks to inflation.
In its first policy decision since national elections last month, the Bank of Mexico board voted unanimously to leave its benchmark rate unchanged at a more than nine-year high of 7.75 percent MXCBIR=ECI, as expected in a Reuters poll.
The bank said risks to growth were tilted downward and that the economy would likely expand between 2 percent to 2.5 percent this year, compared to previous guidance of 2 percent to 3 percent.
• China must balance steady economic growth and risk prevention at a time external uncertainties are increasing, a statement on a meeting of a high-level government body said on Friday.
The State Council Financial Stability and Development Commission (FSDC), headed by Vice Premier Liu He, said more attention needs to be paid to the “transmission” of monetary policy and its support for the real economy, according to a statement on a government website.
• An escalating trade war with the United States, rising corporate bankruptcies and a steep decline in the value of the yuan versus the dollar have raised concerns that China’s economy could face a steeper slowdown.
• Republican and Democratic U.S. senators introduced legislation on Thursday to impose stiff new sanctions on Russia and combat cyber crime, the latest effort by lawmakers to punish Moscow over interference in U.S. elections and its activities in Syria and Ukraine.
• U.S. companies likely maintained a strong pace of hiring in July, suggesting that the robust economy was helping the labor market to weather trade tensions, which could allow the Federal Reserve to raise interest rates again in September.
“We remain watchful for signs that the protectionist trade policies put in place by the Trump administration are slowing hiring, but right now the labor market appears resilient,” said Michael Gapen, chief economist at Barclays in New York.
Economists have warned that the tit-for-tat import duties, which have unsettled the U.S. stock market, could undercut manufacturing through disruptions to the supply chain and put a brake on the strong economic growth.
There have also been concerns that the trade tensions could dampen business confidence and lead companies to shelve spending and hiring plans. But a $1.5 trillion fiscal stimulus, which helped to power the economy to a 4.1 percent annualized growth pace in the second quarter, is assisting the United States in navigating the stormy trade waters.
• Oil prices were steady on Friday, supported by traders placing new hedges in the futures market in anticipation of a decline in U.S. crude inventories, but held back from advancing by the prospect of rising global supplies.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $68.87 per barrel at 0647 GMT, down 9 cents from their last settlement.
Brent crude futures LCOc1 were at $73.40 per barrel, down 5 cents from their last close.
Reference: Reuters, FXStreet
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