· The dollar rose against a basket of currencies on Tuesday as surprisingly strong growth in U.S. retail sales in June soothed jitters about the American economy and trimmed expectations the Federal Reserve may embark on a deep interest rate cut later this month.
The greenback strengthened versus the euro due to data that pointed to a deterioration in confidence among German investors prompted by the trade conflict between China and the United States and political tensions with Iran.
An index that tracks the dollar against a group of six currencies was up 0.45% at 97.38 after touching 97.361, the highest in four sessions. While the euro was down 0.38% at $1.1215.
Sterling fell below $1.24 for the first time since April 2017. It was 0.91% lower at $1.2403.
The British pound fell to six-month lows against the euro and a 27-month trough versus the dollar as Conservative Party members Boris Johnson and Jeremy Hunt, vying to be Britain’s next prime minister, were seen to be toughening their line on Brexit negotiations.
Investors are worried about the rising risk of a no-deal exit from the European Union.
· Last week, Fed Chairman Jerome Powell hinted in testimonies before Congress that the central bank was ready to “act as appropriate” to support the current U.S. expansion, which is the longest on record. U.S. interest rate futures implied traders fully expect the Fed to lower key lending rates by at least a quarter point at its July 30-31 policy meeting, according to CME Group’s FedWatch program.
Traders also expect the European Central Bank to move policy rates deeper into negative later this year as the euro zone economy has been struggling.
Earlier Tuesday, the ZEW Institute said its monthly survey showed economic sentiment among German investors fell to -24.5 in July from -21.1 the month before.
· Central banks are currently embroiled in a covert currency war which is causing stagnation in foreign exchange markets, according to Thanos Vamvakidis, the global head of G-10 FX strategy at Bank of America Merrill Lynch.
Monetary policy easing has been a key theme for central bankers so far in 2019, with the U.S. Federal Reserve, the Bank of England and the European Central Bank (ECB) all signaling dovish stances and fueling speculation of more monetary policy easing.
Wall Street analysts have begun to speculate that President Donald Trump may intervene to weaken the nation’s currency, following a series of comments made by the U.S. president.
Trump most recently complained that China and Europe had embarked on policy moves designed to cheapen their currencies in order to be more competitive with the U.S. on trade, and has repeatedly criticized the Fed over a lack of cuts to interest rates.
Vamvakidis suggested that with most major central banks striking similar tones, currencies are likely to enter deadlock.
“Everybody is trying to move their currencies, but everyone is trying at the same time, and in the end, nobody benefits,” he said. “The collateral damage of all this is that international policy coordination suffers.”
· The U.S. and China have restarted their trade talks, but signs are showing a comprehensive deal could be a long way off, if it happens at all.
President Donald Trump said Tuesday that there’s still a long way to go to reach a deal with China, threatening to slap tariffs on another $325 billion of Chinese goods.
Meanwhile, China had suddenly added a new member to its negotiating team — the country’s commerce minister, Zhong Shan, who was present at last month’s G-20 summit and took part in a telephone conversation with U.S. representatives last week. Zhong is seen by many officials in Washington as a hard-liner, a sign Chinese leader Xi Jinping is standing firm, The Washington Post reported.
“No face-to-face meetings have even been scheduled,” Donald Straszheim, head of Evercore ISI’s China research team, said in a note. “Trade progress has been in reverse. The two sides are further apart now than in Nov-Dec 2018.”
· Iran and the United States sent mixed signals on Tuesday about resolving their disputes as Iran’s supreme leader threatened to further breach the 2015 nuclear deal while the U.S. president cited “a lot of progress.”
Oil prices turned lower on Tuesday, falling by about $2 a barrel as U.S. President Donald Trump said progress has been made with Iran, signaling tensions could ease in the Mideast.
Brent crude futures were down $2.56 or 3.7% at $63.86 a barrel, after hitting a session high of $67.09.
West Texas Intermediate crude futures fell by $2.46 or 4.2% to $57.09 a barrel. The U.S. benchmark hit a session high of $60.06 earlier in the day.
· Analysts doubt much headway has been made between the U.S. and Iran, despite President Donald Trump’s comments that Iran would like to engage in talks.
Crude oil futures fell sharply, and were down more than 4% in afternoon trading after Trump and Secretary of State Mike Pompeo said Iran was willing to negotiate. But oil erased about 2% of its losses after an Iranian official at the United Nations said Iran’s missile program is not negotiable.
Reference: CNBC, Reuters
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