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Trump tweets weaken dollar and rattle markets.

By Jake Trask

GBP/USD retook the 1.31 handle on Friday afternoon after looking in danger of breaking below 1.2950 a day earlier. Sterling has been under pressure of late as political concerns re: Brexit weigh on the currency with political in-fighting and high profile resignations in PM, Theresa May's cabinet. Some of these losses were reversed on Friday as US President, Donald Trump again rattled markets with a series of tweets over trade and currency. The one that weakened the dollar leading to sterling’s recovery stated: “China, the European Union and others have been manipulating their currencies and interest rates lower, which the US is raising rates while the dollar gets stronger and stronger with each passing day – taking away our competitive edge. As usual, not a level playing field…” he went on “...The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates - Really?” The tweets saw the dollar sold off across the board coming to sterling’s aid when it looked like cable could get stuck below the 1.30 handle. There is little data of note from the UK this week however next week’s schedule is packed, including what will likely see only the second interest rate hike from the Bank of England since the financial crisis. GBP/USD sits at 1.3145.

Donald Trump’s tweets has seen continued dollar weakness across the board as we start the week with risk-off trade leading to stock markets around the world seeing a sell-off. USD/JPY was trading above 113 briefly on the 19th however has since sunk below 111 highlighting the flight to safety. As well as wading into currencies, Trump has since tweeted again that he denies collusion with Russia over the Presidential campaign as it has been revealed a former aide, Carter Page is being investigated over allegedly working with the Russian government during 2016. Finally, adding to market jitters he has tweeted: “To Iranian President Rouhani: Never, ever threaten the United States again or you will suffer consequences the likes of which few throughout history have ever suffered before. We are no longer a country that will stand for your demented words of violence & death. Be cautious!” After a busy weekend of sabre rattling by the president, EUR/USD sits at 1.1735.

As we near August we get closer to what is typically a quiet period for the Eurozone as traders and business’ take time off and head to the beach for a break. This week’s main event, which is likely to be a non-event, is the European Central Bank interest rate decision with little expected from ECB head, Mario Draghi. Last month we saw confirmation of the end of QE and its unlikely we will hear any change in tone re: timing of future rate hikes. Tomorrow morning sees the monthly PMI readings from around the bloc with little change in the main gauges predicted as a general slowdown in output permeates the EZ. GBP/EUR trades at 1.1210.

AUD/USD made a break above .74 on Friday as Trumps tweets re: currencies hit the greenback. Advances have halted however as risk-off trade slows the commodity currencies advance this morning. Holders of the Aussie will be looking to Tuesday nights quarterly CPI reading with an uptick of 0.5% expected from Q1, anything higher will likely boost the Aussie as interest rate hike expectation will be bought forward however it’s very unlikely we would see anything from the RBA this year. GBP/AUD is at 1.7730.

It was busy Friday from Canada with several top tier releases affecting the loonie. CPI figures came out in line with expectations however retail sales saw an overshoot with both the core and overall reading far exceeding market predictions. USD/CAD dropped through 1.32 as a result and remains subdued currently trading at 1.3135. US crude oil inventories are due Wednesday however apart from that it’s a pretty quiet week data-wise. GBP/CAD is at 1.7270.

The kiwi has been on a poor run of form recently however it gained a boost like most other currencies on Trumps ructions on Friday. NZD/USD has retaken the .68 handle on the back of the news however it has traded sideways against sterling for much of the past week, with GBP/NZD currently at 1.9280. Tuesday night’s trade balance figures are the one print of note this week with NZD200m surplus expected for June.