•The dollar held near a two-week high against its peers on Friday, supported by strong U.S. economic data and a bounce in Treasury yields.
The dollar index versus a basket of six major currencies stood at 97.836 after reaching 97.882 on Thursday, its highest since May 3.
The greenback reached the two-week peak on robust U.S. housing data and a weekly jobless claims report which pointed to sustained labor market strength in the world’s biggest economy.
The U.S. currency also drew strength as its counterparts such as the euro and pound were dogged by bearish factors.
•“The euro is weighed down as the (euro) zone is saddled with weak economic fundamentals and Italian political concerns, while its all about Brexit for the pound, ” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
Italy’s right-wing League party will “tear apart” European Union rules which are “strangling” the country if it scores well in a May 23-26 European parliamentary election, Italian Deputy Prime Minister Matteo Salvini said on Thursday.
The euro was steady at $1.1178 after falling to $1.1166 overnight, its lowest since May 6.
Britain faces a potentially disorderly exit from the European Union as Prime Minister Theresa May has struggled to keep her Brexit deal and her premiership.
The possibility of a chaotic departure from the EU has pushed the pound to a three-month trough of $1.2783 on Friday. Sterling last traded at $1.2787, having slumped 1.6% this week.
•EUR/USD: Downside risks grow on fears of US-China trade talks falling apart
EUR/USD is on the back foot, having breached key ascending trendline support on Thursday and risks falling to levels below 1.1150 as risky assets are taking a hit on reports stating that China is no longer interested in trade talks with the US.
The shared currency fell from 1.1220 to 1.1166 and closed below the trendline connecting April 26 and May 3 lows on Thursday, as the 10-year treasury yield rose from 2.36% to 2.41% on the back of strong US data and the chance of a Fed rate cut by December, implied by Fed fund futures, fell from 130% to 120%.
Technicals, therefore, are biased bearish. Further, risk assets may take a hit in Europe, adding to the bearish pressures around the EUR on fears the US-China trade negotiations are falling apart.
Xinhua News Agency reported in Asia that China feels Trump’s approach to trade talks lacks sincerity and there is no point in continuing discussions.
•USD/JPY fails to resist above 110.00 as S&P 500 futures turn negative
The ongoing bullish momentum in the USD/JPY pair lost legs just ahead of the 110 handle and the rates eased back to near 109.85 region, as the S&P 500 futures turned negative, signalling a return of the risk-off trades. Focus on US data.
The USD/JPY pair trades above the previous three days' highs in the 109.70 price zone, having stalled its recovery at the 50% retracement of the daily decline measured between 110.95 and 109.01. The pair seems poised to extend its upward corrective movement, as its advancing above its 20 SMA for the first time in almost a month, still far below the larger ones, which maintain their bearish slopes. The Momentum indicator bounced after nearing its mid-line, while the RSI has lost upward strength, holding however at around 55. The pair would need to clear the 110.10 level to be able to advance further, while below 109.45, the risk will turn to the downside.
•China’s yuan fell past the psychologically-important 6.9 per dollar level to its weakest in nearly five months on Friday, but losses were capped on signs the central bank will defend the currency from weakening past the critical 7 per dollar mark.
The Chinese currency is set for a fifth straight weekly loss and has already shed around 2.5 percent to the dollar since U.S. President Donald Trump said on May 5 he was going to raise tariffs on $200 billion of Chinese imports.
“Breaking 7 is beneficial to China because it can reduce some of the effects of tariff increases, but the impact on our renminbi confidence is negative and funds will flow out,” one of the sources said.
•European finance ministers have expressed their relief at a likely delay to car tariffs by the President Donald Trump administration, and warn that any new levies would weigh on global growth.
The White House has until midnight Friday (Washington time) to decide whether to impose tariffs on European cars and car parts. However, four sources told CNBC earlier this week that the U.S. administration will delay the decision by six months.
“That’s a wise decision,” French Finance Minister Bruno Le Maire told CNBC Thursday in Brussels. “I think we should avoid any kind of sanctions, tariffs and trade war because, you know, the deep conviction of the French government is entering any kind of trade war will have a very negative effect on global growth, growth for the U.S., growth for China, and of course for all European countries,” he added.
Imposing duties on European car imports would likely hurt Germany the most, given that it is one of the largest direct car exporters to the U.S.
•China may have no interest in continuing trade negotiations with the United States now, as it sees little "sincerity" in US President Donald Trump's recent approach, according to commentaries run by state media outlets on Friday (May 17).
If the US doesn't make any new moves that truly show sincerity, then it is meaningless for its officials to come to China and have trade talks, according to Taoran Notes, a WeChat blog run by state-owned Economic Daily.
•China has plenty of ways it can retaliate against the U.S. treatment of Huawei, and U.S. companies could feel the brunt of it.
China’s possible reactions range from encouraging boycotts of U.S. products, favoring other companies over American companies, and conducting nuisance regulatory enforcements and inspections.
China could also use the same tactics it might use if trade talks become more difficult or fall apart, such as limiting purchases of U.S. Treasurys or selling them or weakening its currency.
Eurasia Group analysts said there’s only now a 15% chance of a deal by the time President Donald Trump and Chinese President Xi Jinping meet at the G-20 meeting at the end of June. They see a 45% chance that negotiations will be extended, and 40% chance there will be no deal or truce.
Citigroup economists still expect a trade deal within the next couple of months, regardless of where Huawei stands. “This is consistent with our view that the tensions between the U.S. and China go beyond trade. What we thought before this event was these issues regarding the technology sector were mostly taken on a different path, so they’re not that tied to having a trade deal,” said Cesar Rojas, global economist at Citigroup.
•Japan’s top government spokesman said on Friday it is possible that the prime minister could dissolve the lower house of parliament if the opposition submits a motion of no confidence against his cabinet.
Chief Cabinet Secretary Yoshihide Suga spoke in response to questions at a press conference.
•Thailand’s economic growth likely picked up in January-March from the previous three months but the annual pace likely was the weakest for any quarter in almost four years, a Reuters poll showed.
Weak exports, a key driver of Thai growth, and private investment offset some of the boost from higher consumption and public spending, analysts say.
For seasonally-adjusted quarterly growth, the median for 13 economists in the poll was 1.4% in the first quarter. That would top the previous period’s 0.8% and be the fastest on-quarter pace in a year.
For growth on a yearly basis, the median for 17 economists giving forecasts was 3.0% in January-March - which would be the weakest since 2015’s second quarter. The annual pace for October-December was 3.7%.
•Oil prices were steady on Friday, giving up earlier gains, and were on track for the first weekly increases this month, as rising tensions in the Middle East stoked fears of supply disruptions.
Brent crude futures were at $72.61 a barrel at 0658 GMT, down 1 cent, from their last close, reversing earlier increases. Brent was up 2.9% for the week, on track for its first gain in three weeks.
U.S. West Texas Intermediate (WTI) crude futures were at $63.95 per barrel, up 8 cents. WTI was headed for a weekly gain of 2.1%, the first rise in four weeks.
A Saudi-led military coalition in Yemen carried out several air strikes on the Houthi-held capital Sanaa on Thursday after the Iranian-aligned movement claimed responsibility for drone attacks on two Saudi oil pumping stations earlier in the week.
Reference: Reuters, CNBC, Telegraph
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