What are currencies doing?
The ICE U.S. Dollar
Index DXY, +0.42% which
measures the dollar against six rivals, most notably the euro, was little
changed at 93.630, after earlier touching a high for 2018 and setting it up for
the best finish since November 2017. The index gained 1.2% last week, its
strongest weekly gain since the period ending April 27, according to FactSet.
The WSJ Dollar Index BUXX, +0.10% a
broader measure of the greenback that also includes emerging-markets
currencies, was little changed in negative territory at 87.14, after gaining 1%
last week, also the biggest weekly gain since April 27.
The euro EURUSD, -0.6791% edged
0.1% higher to $1.777, paring earlier losses.
Elsewhere, the British
pound GBPUSD, -0.6105% slid
to $1.3420, compared with $1.3466 late Friday. Sterling is now trading at its
lowest dollar level since late December.
Against the Japanese
yen USDJPY, -0.78% the
dollar surged to ¥111.04, from ¥110.75 late Friday.
The Turkish lira was taking
a major hit against the dollar on Monday, hitting a fresh record low with the
dollar buying 4.5792 lira USDTRY, -2.6515% compared
with 4.4917 late Friday.
The Canadian dollar USDCAD, +0.2418% and
Mexico’s peso USDMXN, -0.8426% strengthened
against the buck on Monday. Canada and Mexico remain in negotiations regarding
the North American Free Trade Agreement with the U.S.
Market participants expect a
deal in principle to be reached this month. President Trump’s economic adviser
Larry Kudlow earlier said that Nafta was “still cooking” and that there could
be more work done this week.
The greenback bought
C$1.2801, down 0.7%, as well as 19.8625 lira, down 0.5%.
What’s driving currency trade?
Optimism that the U.S. and
China can avoid an all-out trade war drove several asset classes higher,
including the dollar, global equities, U.S. stock futures and oil prices.
U.S. Treasury Secretary
Steven Mnuchin said on Sunday that the Trump administration would put the trade
war with China “on hold” while the two countries work on a deal
to lower the U.S. trade deficit with that country. Meanwhile, China agreed to buy
more U.S. products, but without specifying a dollar amount.
But investors will continue
to watch the situation closely as trade representative Robert Lighthizer also
released a statement that appeared to
contradict Mnuchin saying U.S. officials may still resort to
The dollar continued to draw
support from elevated bond yields as higher rates can make dollars more
attractive to investors. The 10-year Treasury yield TMUBMUSD10Y, -2.34% was
hovering at 3.064%, having
touched a seven-year intraday high of 3.126% early Friday.
Climbing rates have been
supported by strong economic data, which have fueled the view that the Federal
Reserve will adopt an aggressive pace of rate increases, perhaps three further
rate increases rather than two in 2018.
The dollar was boosted as
well against the euro in early Monday trading amid continuing tensions
surrounding Italian politics. The country’s two biggest populist parties over
the weekend agreed on an outline of their cabinet and are expected to present
their prime minister candidate to President Sergio Mattarella later on Monday.
But having promised to
challenge Brussels’ budget guidelines and rules on immigration, the coalition
is already seen at loggerheads with the European Union. There are concerns the
fiscal plans of the two parties involved will cause upheaval for the Italian
economy and create a new sovereign debt crisis.
The yield on 10-year Italian
government bonds TMBMKIT-10Y, +3.60% rose
19 basis points to 2.412%, trading around its highest level since July last
Meanwhile in the U.K., the
British pound slipped to its lowest level since December earlier in the day, as
traders focus on Wednesday’s inflation print in Britain, as well as renewed
Brexit negotiations which kick off in Brussels on Tuesday.
And the Turkish lira was at
the mercy of markets on Monday, tumbling to a fresh record low. Last week,
President Recep Tayyip Erdogan stoked worries about the independence of the
central bank when he told Bloomberg News in an interview that he would become more
involved in monetary policy after his expected re-election in a
June 24 snap election.
There are also concerns
about the Turkish central bank’s ability to stop the weakness of the lira, with
a strong dollar not helping. The lira has tumbled 20% against the dollar this
What are strategists saying?
“The China agreement is a
big win for dollar, because if we look at the various uncertainties that the
U.S. faces, trade was far and away the No. 1 question,” said Marshall Gittler,
chief strategist at ACLS Global, in a note to clients.
“With the uncertainty in
this policy area down somewhat, the dollar should be able to rally further,
especially as uncertainty with regards to the key fiscal and monetary policy
areas in Europe has risen in response to the Italian challenge,” he added.
“Sterling’s downbeat start
to the new week suggests market participants are not too optimistic about the
prospects of a breakthrough in Brexit talks ahead of the next round of
negotiations with Brussels on Tuesday,” said Fawad Razaqzada, market analyst at
Forex.com. “But with sentiment being extremely negative towards the pound, we
think that the probability of it going significantly further lower without a
meaningful bounce may be quite low now. Thus, a rebound here would not come as
surprise to us, especially given the importance of this week from a fundamental
point of view.”
What else is in focus?
The Chicago national
activity index for April rose to 0.34 in April, compared with 0.32 in March.
Atlanta Fed President
Raphael Bostic said he would prefer to shift to a form of a flexible
price-level target for the Fed during a speech at the Atlanta Economics Club.
Meanwhile Philadelphia Fed
President Patrick Harker said he was seeing two or three
more interest rate hikes by the central bank this year. The Fed
raised rates in March and its dot plot shows three rate increases for 2018,
making Harker’s expectation rather hawkish.
Minneapolis Fed President
Neel Kashkari is scheduled to take part in a discussion at Michigan’s Bay
College at 5:30 p.m.
In other assets, U.S.
stocks, including the Dow Jones Industrial Average DJIA, +0.21% ended the
session higher, amid the receding fears of international trade
for the original article from Market Watch.