Daily Currency Update

Get access to our expert daily market analyses and discover how your currency has been tracking with our exchange rate tools.

Escalating Trade Tensions Continue To Drive Currency Direction

By Alex Edwards

The trade war rhetoric over the weekend received quite a bit of attention from investors and traders in the early European session yesterday amid a lack of any major economic data releases. Risk was sold off, apparent in the reaction in equity markets, and GBP/USD looked at one point it was heading for a break below 1.32. In the latest headlines on the subject, Trump has criticised Harley-Davidson over its plans to move production out of the US as a way to avoid EU tariffs.

Before the H-D story emerged a WSJ report that Trump was considering widespread restrictions on companies that are foreign owned, or moreover that the US could prevent companies with at least 25% Chinese ownership from purchasing businesses that had “industrially significant technology”. US trade advisor Navarro then came out and said there were no plans for such restrictions and markets breathed a sigh of relief. Risk appetite improved mildly and GBP/USD pushed back towards 1.33.

Cable opens close to this figure this morning and whilst the data docket looks a little light again today it’s likely that the trade rhetoric will continue to steer currency direction. That said, MPC members Haskel and McCafferty are speaking this morning and their comments may still get some reaction.

As mentioned above, most of the focus yesterday was on trade war talk and tweets. Risk sentiment improved following Navarro’s TV interview and the dollar finished the day on the back foot, at least vs. the likes of the GBP and EUR. That said, investors continue to trade cautiously as global trade tensions escalate.

EUR/USD bounced back and over the 1.17 figure yesterday following Navarro’s comments but traders remain on high alert this morning for the prospect of further spats, tweets and news headlines. In fact, EUR/USD rose to its highest level overnight, its highest point since the ECB live monetary policy meeting on June 14th.

EUR/USD hasn’t been able to hold on to the 1.17 handle this morning though, as the dollar attracts bids in the early London session. There’s nothing in particular that that has caused the move – there’s no data to go on. Apart from the escalating trade tensions there isn’t that much for markets to go on for the day ahead either and traders in Europe may be lured outside by the great weather, fueling what are generally steady ranges at this moment in time.

The commodity currencies, including the aussie dollar, seem to always take the brunt as and when trade rhetoric worsens, and for good reason. AUD/USD hasn’t been aggressively offered through the last 12/24 hours but it’s certainly come under a bit of selling pressure and is currently flirting with a convincing break back below the 74 US cents mark.

USD/CAD has been reasonably steady over the last day or so. The CAD has recovered some of its losses from the post CPI and Retail Sales related sell-off on Friday and opens this morning in London at 1.3295.

Without any major data due for release today the CAD will likely take its lead from trade rhetoric and oil price volatility.

NZD/USD has tracked AUD/USD and like the aussie dollar has been sensitive to ever changing risk sentiment and rising trade tensions. There’s been no local data released overnight but we do at least get ANZ Business Confidence from NZ later tonight.