Daily Market Update

Dollar Weakens as Trade Dominates

September 18, 2018

The greenback lost across the board during yesterday’s session and has continued that negative momentum overnight.

Overview

The biggest news comes on the trade front. President Trump is set to hit China with a 10% tariff on 200 billion dollars in goods starting next week, an obvious escalation in trade tensions between the two largest economies in the world. The tariffs are set to increase to 25% at the beginning of 2019. Global equity market participants were expecting the initial percentage to get higher than 10% making the new tariffs seem “less bad” and allowed stocks to rise. Indeed, the safe-haven yen fell to a two-week low. However, expect a swift response from China as the country has continued to threaten retaliation against the U.S.

The fireworks in the Chinese-US trade “war” has also called into question what kind of progress can be made between the U.S. and Canada as we approach the deadline for the two sides to come to an agreement. This leaves the Canadian “loonie” twisting in the wind and the CAD/USD pair open to headline-driven market moves.

With no first-tier data set for today, trade will continue to drive currency markets. At the time of writing, news broke that China is filing a complaint against the World Trade Organization over the tariffs.

EUR

The common currency ticked higher against the U.S. dollar again overnight. The vast majority of the move can be attributed to general dollar weakness. European Central Bank chief Mario Draghi spoke in Paris this morning, garnering attention but not directly affecting currency markets. Draghi spoke about shoring up the banking sector and creating common insurance for bank deposits which took a backseat to flashy trade war headlines.

GBP

The sterling remains near a 7-week high against the greenback despite a lack of a breakthrough on Brexit. A poll released today suggests that half of academics believe the U.K. will fail to secure a deal by the deadline, a result that would likely be disastrous for the sterling. In the near term, consumer prices are set for release tomorrow and could provide some fundamental data-driven moves.

 

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