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Trump’s tariffs reignite trade fears

Trump’s tariffs reignite trade fears

USD
After two consecutive daily pullbacks, the US Dollar has regained the 94.00 handle on the DXY (Dollar Index) and looks to move even higher above this critical barrier.

On the trade front, President Trump imposed tariffs on US imports of steel and aluminium from trade partners in North America and Europe. However, the Greenback barely reacted to the news as some fatigue by market participants is observed around these headlines.

Fed Governor Brainard continued to back gradual increases in US interest rates and expects policy to shift gradually to modestly beyond neutral while Cleveland President Mester also called for gradual increases, illustrating that there will need to be a major shock to prevent a June hike.

Apart from Nonfarm Payrolls, investors will be looking to the release of the ISM Manufacturing during last month, Construction Spending results and the speech by Minneapolis Fed N.Kashkari.

GBP

Sterling made headway ahead of the New York open with a firm tone surrounding oil prices and risk appetite underpinning confidence. There was a peak near 1.3350 against the Dollar before fresh losses as risk appetite dipped again and the US currency gained fresh support. The Treasury announced that Haskel had been appointed to replace McCafferty on the Monetary Policy Committee from September which could lead to a slightly more dovish committee. There was a decline to near 1.3250 against the Dollar this morning with the Euro testing resistance above 0.8800 ahead of UK PMI manufacturing data.

The annual Nationwide house-price index increase slowed to 2.4% from 2.6%, but there was a stronger-than-expected reading for consumer lending with an increase of £5.7bn for April from a revised £4.4bn previously. The data will maintain expectations that the economy will register at least a limited recovery from weak first-quarter growth.

The UK manufacturing PMI is released today at 9:30am and is expected to show that the pace of expansion in the activity slowed further in May after April’s disappointing figures. The index is expected to arrive at 53.5 versus 53.9 booked previously.

EUR

The Euro is trading down 0.2% at around 1.1670 against the US Dollar as we await the set of manufacturing activity report across the Eurozone which will confirm deceleration in May.

Eurozone May inflation was stronger than expected with an increase to a 13-month high of 1.9% from 1.2% and compared with expectations of 1.6%. The core rate increased to 1.1% from 0.7% amid stronger services-sector data. Immediate market reaction was limited, although there will be additional pressure on the European Central Bank (ECB) to move towards a less aggressive policy. Italian developments remained under scrutiny, although the atmosphere was less frenzied than the previous two sessions as political wrangling continued. The President and main parties continued negotiations with the Lega and 5-Star parties looking to revive their attempts to form a government with another nominee as Economy Minister.

In the data space, the final manufacturing PMIs for May in Euroland are coming up next.

Data to watch:

24hr EUR G7 Meeting
01:30 USD FOMC Member Kaplan Speech
02:45 CNY Caixin Manufacturing PMI (May)
08:55 EUR Markit Manufacturing PMI (May)
09:30 GBP Markit Manufacturing PMI (May)
13:30 USD Nonfarm Payrolls (May)
13:30 USD Average Hourly Earnings (YoY) (May)
13:30 USD Unemployment Rate (May)
13:55 USD FOMC Member Kashkari Speech

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