•The euro edged higher on Friday and is poised for a second consecutive week of gains on growing fears that any escalation in the trade conflict between the United States and China would force U.S. policymakers to cut interest rates.
The single currency edged 0.1% higher to $1.1220 on Friday and was on track for a second consecutive week of gains.
The dollar index measuring the U.S. currency against a basket of six major currencies, of which the euro is a main component, was slightly firmer at 97.43.
Still, trade tensions have had broadly little impact on foreign exchange markets with typical perceived safe-haven assets such as the Japanese yen only gaining 1.2% this week while broader currency market volatility gauges were subdued despite a minor bounce this week.
•Athanasios Vamvakidis, an FX strategist at Bank of America Merrill Lynch, said if China retaliated then the threat of a global trade war will affect the outlook of the U.S. economy and increase the chances of a Fed rate cut.
“In this case, the Fed has more room to ease than most other central banks, suggesting eventually a weaker dollar against both the euro and the yen,” he said.
•EUR/USD holds its gains despite fresh US tariffs
EUR/USD is trading above 1.1200, marginally higher. The new US tariffs on China have come into effect in significant deterioration. However, talks continue in Washington. Further developments are awaited. The German trade balance came out at 20 billion.
EUR/USD's resilience could be associated with the fact that the EUR/JPY cross is better bid above 123.00, despite the 0.30% drop in the S&P 500 futures at press time. The offshore yuan's recovery from the four-month low of 6.8635 seen on Thursday may be helping EUR/USD remain bid.
That said, the JPY could pick up a strong bid if the European equities fail to track Asian equities higher. In that case, EUR/JPY may fall back below 123.00, pushing EUR/USD lower.
It is worth noting that the US-China trade talks have been extended to Friday. However, with the US' decision to raise tariffs, the probability of a breakthrough in negotiations has dropped.
•The Australian dollar has fallen below the US$0.7 mark again after the Reserve Bank was forced to slash its forecasts for economic growth today.
The trade war won’t be good news for the Aussie either but the RBA is now sketching out a much grimmer picture than previously. It now expects annual GDP growth in the 12 months to June of 1.75%, compared to the 2.25% it flagged six months ago. The target for 12 months to December is downgraded from 3.0 to 2.75%.
•President Donald Trump raised the stakes in his trade conflict with China as the U.S. increased tariffs on $200 billion in Chinese goods.
It had been hoped that a resolution could be reached by the two sides prior to a midnight deadline for the tariff hike, but no deal materialized. Trade talks between the world's two largest economies are set to continue on Friday.
•A reminder that on Thursday, Gao Feng, a spokesperson for China’s ministry of commerce, said China was ready to hit back if the US pushed through with its plan to increase tariffs.
“We hope the US side could meet the Chinese side halfway to address the issue through dialogue rather than unilateral measures,” Gao told a press briefing.
“At the same time, the Chinese side is fully prepared and has the resolve and capability to safeguard its own legitimate rights and interests.”
•As US raises tariffs on $200bn Chinese exports, a reminder that escalation/spillover of US-China trade war has for a while now been @TheEIU’s top global risk. Tariffs damaging for CN, but also no free lunch for Trump as US companies/consumers ultimately absorb higher costs.
•Assuming no #USChina deal and with current higher tariffs remaining in place, the negative impact on China’s GDP growth would be some 0.5% and some 0.2% on US growth, with just the additional increase in tariffs representing a cost for the US of 0.15% of 2018 US GDP
•German exports rose unexpectedly in March, data showed on Friday, raising hopes that a slowdown in Europe’s largest economy will not significantly dent growth in the first quarter despite headwinds from trade disputes.
The Federal Statistics Office said seasonally adjusted exports rose by 1.5 percent on the month while imports were up 0.4 percent. That meant the trade surplus edged up to 20.0 billion euros ($22.45 billion) in March from 18.7 billion euros the previous month.
•Japan’s economy likely contracted slightly in the first quarter as corporate and consumer spending weakened, a Reuters poll showed on Friday.
Exports also deteriorated amid trade disputes and weaker global demand, hurting the trade-reliant economy.
Gross domestic product (GDP) is expected to have fallen 0.2% in January-March on an annualized basis, the poll of 18 economists showed, after it expanded 1.9% in the fourth quarter last year.
That would translate into a flat reading on a quarter-on-quarter basis, after the economy grew 0.5% in the October-December quarter, the poll showed.
“Firms likely postponed their capital spending on worries about the global economic slowdown and uncertainty over trade talks such as between the United States and China,” said Kentaro Arita, senior economist at Mizuho Research Institute.
•Oil prices rose on Friday despite the start of U.S. President Donald Trump’s tariff hike on $200 billion (153 billion pounds) of Chinese goods, stoking the trade dispute between the world’s two biggest economies.
The Brent crude oil benchmark was at $70.73 a barrel at 0643 GMT, up 34 cents, or 0.5%, from its last close, after rising as far as $71.23 a barrel.
U.S. West Texas Intermediate (WTI) crude futures were up 39 cents at $62.09 per barrel, having earlier hit $62.49 a barrel.
“(Still) crude prices are likely to be supported on geopolitical risks,” said Edward Moya, senior market analyst at futures brokerage OANDA.
Reference: Reuters, CNBC, FX Street
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