It has been a roller coaster ride for the greenback as the USD sell-off that started on Friday after Fed Chair Powell’s Jackson Hole speech and President Trump adding additional tariffs to China completely reverses early Monday morning when Trump announced that the US and China are “getting back to the table”. There is now a possibility that an agreement could happen. This is a complete reversal of comments earlier during the weekend and shows how fragile these trade talks are. US equities and Treasury yields have reacted positively towards the news of new negotiations.
The German IFO Business Climate Index came in at 94.3 for August. This was weaker than last month’s 95.7 and missed estimates of 95.1. Expect the single currency to remain under pressure as geopolitical pressure from Italy remain. Comments by the Fed regarding global economic weakness which includes the Eurozone economy which seems on the verge of recession will continue to put pressure on the EUR.
The British Pound is trading lower as uncertainty regarding Brexit continues to weigh on the GBP. After receiving some positive response last week from German Chancellor Merkel and French President Macron, EU President reversed those comments calling Prime Minister Johnson “Mr. No Deal”. British traders are observing a holiday today but the GBP has fallen off the highs that were reached on Friday.
After reaching multi-year lows based on the negative US-China trade comments from President Trump on Friday, the JPY has reversed after the “back to the table” comments were made early Monday morning. Safe haven buying could return if the trade news turns negative once again, so for now it looks like a “ride the wave” mentality will be how the USD/JPY trades today.
The Canadian Dollar originally moved higher overnight but then moved lower again as oil prices fell below $54. Trade related headlines will continue to affect the Canadian Dollar. If the trade war can come to a conclusion, commodity linked currencies like the Canadian Dollar will improve.
In response to trade escalation the Chinese Yuan was under pressure in early Monday morning trading. Many traders still believe there is room for the Yuan to weaken further which is sure to draw the ire of President Trump. He has already called China a “currency manipulator”. While traders are optimistic about the latest possible negotiations any breakdown may have dire circumstances.