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. The DXY opens this morning at 94.81, a 0.4% loss on the previous day after trade discussions appear to be back on the table.
Again, uncertainty dominated market sentiment for most of the day with trade concerns continuing to be the primary driver in currency markets. The implications of a protracted trade dispute have begun to permeate within the media with companies like Ford and Apple outlining how the trade tensions would affect their business’. Ultimately the stark reality of what President Trumps trade policy shift could look like has rattled markets as a reconciliation looks far away. It also wasn’t helped with the Presidents recent escalation of the trade conflict, threatening a further $267bn worth of tariffs. The market did, however have a glimmer of hope with US Treasury Secretary Steve Mnuchin inviting China to re-open trade talks. Mnuchin, known as a moderate within the Whitehouse, isn’t expected to have any major breakthroughs as previous discussions have proved ineffective. Nevertheless, 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 prices.
Closing out an action-packed day was a small decline in US Producer Prices with their first drop in 1.5 years to -0.1%. Led by declines in food prices and a range of trade services, the Greenback weakened slightly on the news.
Moving into Thursday, attentions remain affixed to the headlines and the CPI report due later in the day.