You are here: Home > articles > Forex > European Open Preview – Trump threatens new tariffs, markets retreat
European Open Preview – Trump threatens new tariffs, markets retreat
May 6, 2019 8:26 amVideo
Latest News
- Market Comment – Iranian attacks put markets on edge, but fallout limited April 15, 2024
- XM and Human Initiative Spread Hope to Flood Disaster Evacuees in Demak April 15, 2024
- Weekly Technical Outlook: 15/04/2024 – GBPUSD, USDJPY, AUDUSD April 15, 2024
- Forex forecast 04/15/2024: EUR/USD, GBP/USD,USD/CAD, USDX and Bitcoin from Sebastian Seliga April 15, 2024
- Weekly Technical Outlook – GBPUSD, USDJPY, AUDUSD April 15, 2024
- Technical Analysis – Gold in a wait-and-see mode April 15, 2024
- UK inflation report could shift the market’s focus away from geopolitics – Preview April 15, 2024
- Gold Still Expected to Rise on Wall Street and Main Street April 15, 2024
- EUR/USD and GBP/USD: Technical analysis on April 15 April 15, 2024
- Analysis and trading tips for USD/JPY on April 15 April 15, 2024
- Analysis and trading tips for GBP/USD on April 15 April 15, 2024
- Analysis and trading tips for EUR/USD on April 15 April 15, 2024
- Hot forecast for EUR/USD on April 15, 2024 April 15, 2024
- Technical analysis of GBP/USD for April 15-20, 2024 April 15, 2024
- Technical analysis of EUR/USD for April 15-20, 2024 April 15, 2024
- Energy in Focus: What news awaits investors on Wall Street April 15, 2024
- Forecast for EUR/USD on April 15, 2024 April 15, 2024
- Forecast for GBP/USD on April 15, 2024 April 15, 2024
- Forecast for USD/JPY on April 15, 2024 April 15, 2024
- Outlook for EUR/USD on April 15. The euro is already falling for no apparent reason! April 15, 2024
Trump warns of new tariffs on China, dents risk appetite
Risk aversion is the name of the game on Monday, with investors diverting funds away from riskier assets like stocks and towards safe havens such as the Japanese yen, amid fears that the US-China trade conflict is ready to re-escalate. President Trump said over the weekend that he is going to raise tariffs on $200bn of Chinese goods to 25%, from 10% currently, and that he will impose new levies on another $325bn worth of products ‘shortly’.
This is a major turnaround, as the popular narrative until now was that an accord is practically a done deal following months of optimistic rhetoric on both sides. Indeed, the market reaction was severe, with Chinese stocks falling by more than 5%, while futures tracking US indices like the S&P 500 are also pointing to a 2% lower open today. In the FX spectrum, the yen is outperforming while commodity currencies like the aussie and the kiwi are on the back foot.
Overall, a deal still seems more likely than not, though uncertainty has clearly returned and risk aversion may linger for a while. Trump wants to score a victory and wrap this up before the 2020 election race, while also boosting the stock market, so an agreement is still the most likely conclusion. However, the US President seems to be reverting back to his original methods of ratcheting up pressure first to generate negotiating leverage, implying that things could get worse before they get better from here.
Dollar retreats, but trade fears provide support
The US dollar pulled back on Friday, even despite another set of solid US employment data. Nonfarm payrolls rose by 263k in April, much more than the anticipated 180k, while the unemployment rate unexpectedly declined. The disappointing spot was wage growth, which held steady at 3.2% in yearly terms, missing the forecast for an acceleration to 3.3%.
The dollar tumbled immediately as investors tend to focus more on wage growth, and continued even lower after a disappointing ISM non-manufacturing PMI and some cautious-sounding remarks by Fed officials. As a result, the market probability for a Fed rate cut this year rose back up, yet the dollar is trading nearly unchanged against a basket of currencies on Monday. Renewed trade uncertainty seems to be fueling demand for the world’s reserve currency; recall that the greenback was the market’s favorite haven asset as tensions escalated last year.
Sterling roars back on hopes for Tory-Labour deal
The British pound soared across the board on Friday amid growing hopes that the nation’s two biggest political parties could reach an agreement soon to break the Brexit stalemate.
The latest headlines suggest that both the government and Labour are ready to compromise on a customs union arrangement, which would remove the need for the Irish backstop and therefore allow Brexit to move forward. Any official confirmation of that could be positive for the pound as uncertainty would fade and the risk of a no-deal may diminish. That said, downside risks still linger, with the most prominent one being the Tories replacing Theresa May with a hardline Brexiteer.
Related Posts: