The United States Dollar Index (DXY) moved marginally lower against a basket of currencies after another, mostly benign day on the economic calendar. There was however quite a few headlines to contend with which drove market sentiment throughout the day, mostly trade related.
Ultimately the stark reality of what President Trump’s trade policy shift could look like has rattled markets. It hasn’t been helped with the President’s recent escalation of the trade conflict, threatening a further $267bn worth of tariffs. There was a glimmer of hope with US Treasury Secretary Steve Mnuchin inviting China to re-open trade talks. The news bolstered emerging markets and commodity currencies.
Fed Governor Brainard, a key member of the FOMC, also spoke overnight. Interestingly, she echoed comments from other members of the FOMC that monetary policy may need to move faster and into restrictive territory. She warned of imbalances in the yield curve but ultimately the market interpreted her speech to suggest the Fed intends to tighten more than the market currently has priced in. Moving into Thursday, attentions remain affixed to the headlines and the CPI report due later in the day.