The U.S. dollar fell against a majority of its major rivals overnight. Traditional safe-haven currencies like the Japanese yen and the Swiss franc were the biggest movers, gaining on trade war escalations.
In a response to President Trump’s surprises tariffs that were announced last week after the Fed’s “hawkish cut”, China allowed its currency to devalue dramatically. Onshore yuan weakened past 7-per dollar and marked its weakest level in a decade. Bloomberg is also reporting that state-owned companies will suspend imports of major agricultural products, which will be seen as a political attack against the American president who is struggling to hold on to support of many farmers who have been the victims of this protracted trade war.
Early this morning, President Trump took to Twitter to express his displeasure. He again said that China engaged in “currency manipulation.” Many analysts, including this one, see the risk of U.S. currency intervention as rising in response to China’s devaluation. Threats of a currency war on top of a trade war have global markets in the red. Treasury yields are again inverted and American stock futures show a major sell-off on today’s open.
Later this morning, Markit and ISM service PMI will cross the wire. While the data is top-tier, it will likely take a backseat to politics today. President Trump is set to give a press conference on the mass-shootings over the weekend but we expect him to address the new Chinese retaliation as well. So much for a sleepy August Monday!
What to Watch Today…
- President Trump press conference at 10 a.m.
Complete Economic Calendar can be found here.
The Euro popped higher and has now fully recovered from the dollar’s surge following the Fed meeting last week. The common currency rose even after poor economic data was released. IHS Markit’s Euro Zone Composite Final Purchasing Managers’ Index (PMI) dropped to 51.5 in July from June’s 52.2. A reading above 50 indicates expansion.
The Australian dollar has been caught in the cross hairs of the growing trade war between the United States and China. The Aussie has been under pressure but fell nearly another percent overnight after China allowed its currency to devalue. AUD/USD is now at its lowest level since January 3rd and has further downside risks depending on Trump’s reaction today.