The United States Dollar whipsawed in trading yesterday, gaining slow and steady ground versus the G10 through the US session, but failed to hold onto these gains in overnight trading and is opening today a touch lower versus all major currencies.
Overview
Investors scrambled for safety overnight as twin news bulletins from the White House spooked markets, and while Wall Street cheered Jerome Powell’s dovish pivot last week, the ebullience is long gone today. Toward the end of the US session yesterday, President Trump told reporters that should Fed Governor Lisa Cook not tender her resignation, he would, in fact, fire her, opening the path for a 4-3 majority of voting members of the FOMC that would be sympathetic to the President. This statement is a major escalation in the Administration’s ongoing battle with the US’s central bank, and while traders have been espousing concern over the ongoing threats to the Fed’s independence for some time now, these concerns have ratcheted up in the last few weeks.
Trump also threatened further retaliatory tariffs on nations that impose digital services taxes on the US, primarily concerning the European Union, going so far as to threaten sanctions on European Union or state officials who have been deemed responsible for the bloc’s Digital Services Act. While his chief complaint about the law is that it imposes additional costs on US tech firms, the Administration has also called it an act of censorship on Americans. These two acts served to reverse the Dollar’s turnaround, and it appears markets are back in the doldrums.
As the data calendar is fairly bare until Thursday, political and monetary headlines are likely to continue to drive price action before the release of a further GDP reading and the PCE Deflator Index towards the end of the week. The US did release durable goods orders this morning, which declined less than expected.
What to Watch This Week…
- US GDP Q2 2nd Est, Thursday 8:30 AM
- US PCE Deflator Index JUL, Friday 8:30 AM
- France & Germany GDP & CPI, Friday
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇑
The single currency slid dramatically lower through yesterday’s US session, at one point erasing all the gains it saw following Powell’s speech at Jackson Hole last Friday, but is again attempting to mount a comeback this morning. Though international headlines are largely dominated at the moment by the ongoing battle between President Trump and the Federal Reserve, the Eurozone is facing some political woes of its own, keeping gains versus the Buck muted today. France’s current premier, Francois Bayrou, announced plans for sweeping budget cuts, which have now spiraled into the possibility of a vote of no confidence and yet another snap election, and Eurozone equities are slumping in response.
JPY ⇓
Japanese Yen, the traditional global safe haven, is gaining ground against the Buck and most of its other G10 peers this morning as a global flight to safety takes hold. Emerging market assets as a whole are underperforming this morning, tracking with JPY’s outperformance. Japanese Government Bond futures ticked lower in their typical inverse correlation with US Treasury yields, which spiked higher following Trump’s vow to oust Fed Governor Cook. Japan’s finance minister Kato refrained from commenting directly on the news, but emphasized the “importance of currency markets reflecting economic fundamentals and moving in a stable manner.
