US-China trade sentiment soured further overnight, forcing US Equities and treasury yields lower through US trade with the S&P500 down 0.7% and Treasury yields falling to 2.82% and 2.5% for the 10 and 2 years respectively. In contrast, we saw the USD index rise 0.8% on the day to touch 9-month highs as the deterioration in risk appetite continued to support the safe-haven currency. The price action was precipitated by commentary from one of Trump's key economic advisors regarding China’s reply to US trade demands which have been deemed ‘unsatisfactory’, and the president would not be retreating on China.
In other news from overnight, the People’s Bank of China devalued the Chinese Yuan, again. The reference rate was set at its highest level since December and has only added fuel to the trade war fire. This event looks configured to support increased dollar bids, at least in the run-up to the end of the week. With month end, quarter end, and half year approaching we’re also likely to see some portfolio rebalancing and “squaring up” of books and currency positions – it could make for some heightened volatility over the next two days.