After attempting to stage a shaky recovery during yesterday’s afternoon session, the United States Dollar is once again on the back foot against all G10 currencies this morning.
Overview
Rhetoric between the US and China continued to ratchet up in a tit-for-tat trade war last night, with both nations saying the other needs to come to the negotiating table first. The Trump administration, in addition to stating it would be up to China to initiate any de-escalation, also indicated it would be using ongoing trade negotiations with its partners to pressure other nations to limit their dealings with China as well, however feasible that may be. China, for its part, said it would not be engaging in any talks without steps on the US side to ease tensions, including appointing a dedicated representative and showing more respect.
Though any discussion of a path toward de-escalation may be positive in some terms, tensions in the near term between the world’s two largest economies are still clearly continuing to spiral. The US barred sales of AI giant Nvidia’s H20 chip in China, which currently account for more than $5 billion of the company’s balance sheet. Nvidia shares slid 6% in pre-market trading, dragging wider US equity indices down with it. China, for its part, did post a stronger than expected economic performance in the first quarter of this year according to data released overnight, likely due in large part to increased demand as the threat of tariffs and trade tensions loomed over the global economy ahead of April 2nd’s “Liberation Day” levies. Additionally, President Trump launched a probe into the need for tariffs on some critical minerals, of which the US produces very few. The US and Japan are set to open trade talks today, and the world will be watching with baited breath for exactly how much Trump pushes Japan on cutting down on Chinese trade.
Domestically, US retail sales did grow a whopping 1.4% in the month of March, with most of the growth coming from auto and auto part sales ahead of the implementation of tariffs at the beginning of April. This was largely as expected, though, as markets began to price in the risk of such a rise through the back half of Q1 as trade rhetoric continued to heat up. Fed Chair Jerome Powell is also due to speak to the Economic Club of Chicago this afternoon and will no doubt face a slew of questions about the larger health of the US economy, and how the Fed will continue to balance its dual mandate as both inflation and recession risks rise in tandem.
What to Watch This Week…
- Bank of Canada Rate Decision, Wednesday
- European Central Bank Rate Decision, Thursday
- Monex USA Online is always open
The complete Economic Calendar can be found here.
GBP ⇑
Though gaining less against the Dollar than many of its major peers, Pound Sterling is stronger versus USD for the seventh straight session as US uncertainty continues to hover near historic highs. UK inflation, released this morning, grew less than expected last month for the second straight reporting period, though the year-over-year inflation figure there does remain high at 3.4%. GBP has as of late become a favorite for risk-forward investors seeking larger returns, given the UK’s rather preferential status compared with its G10 peers on the tariff front.
EUR ⇑
The single currency, as has been the case over the last month, is continuing to reap the benefits of US economic woes and has regained all of the ground lost yesterday afternoon over USD. European equities, while still facing their own performance issues because of global trade tensions, have substantially outperformed their US peers, and last week German 10-year bunds outperformed US treasuries by the most ever. EUR’s recent movement has many analysts considering whether the currency should now be treated as a ‘safe haven’ much like JPY or CHF in place of the Dollar given the US’ recent unpredictability and (some might say) instability.
