Dollar falls broadly after Trump's Mexico tariff threat, yen jumps to 4-1/2 month high on safe-haven play

Market Review - 01/06/2019  05:09GMT  

Dollar falls broadly after Trump's Mexico tariff threat, yen jumps to 4-1/2 month high on safe-haven play

The greenback fell against majority of its peers on Friday (especially against safe-haven yen and the Swiss franc) on risk aversion after U.S. President Trump threatened to impost a 5% tariff on all Mexican goods.  
U.S. President Donald Trump tweeted ahead of Asian open on Thursday the United States will impose a 5% tariff on all goods coming from Mexico starting on June 10 until illegal immigration across the southern border is stopped.  
  
"The Tariff will gradually increase until the Illegal Immigration problem is remedied, at which time the Tariffs will be removed," Trump said on Twitter.  In a statement issued by the White House, Trump said the tariff would increase to 10% on July 1, 15% on Aug. 1, 20% on Sept. 1 and to 25% on Oct. 1.  "Mexico's passive cooperation in allowing this mass incursion constitutes an emergency and extraordinary threat to the national security and economy of the United States," Trump said in the statement.  "Mexico has very strong immigration laws and could easily halt the illegal flow of migrants, including by returning them to their home countries," he said.  
  
The Commerce Department said on Friday its personal consumption expenditures (PCE) price index increased 0.3% last month after rising 0.2% in March. That lifted the annual increase in the PCE price index to 1.5% from 1.4% in March.  
U.S. University of Michigan consumer sentiment dropped to 100.0 in May from previous reading of 102.4 and lower than market expectation of 101.5.  
  
Versus the Japanese yen, dollar came under selling pressure ahead of Asian open on Trump's tweet and continued to ratchet lower in Asia, hitting a low at 108.72 in European morning. Despite a brief recovery to 108.90 at New York open, price fell again to a 4-1/2 month low at 108.28 at the close, weighed down by the release of soft U.S. consumer confidence data and selloff in U.S. stocks, the Dow ended 354 points or 1.41% lower at 24815.  
  
Although the single currency dropped to session lows at 1.1125 in Asian morning, price erased its intra-day losses and gained to 1.1157 in European morning on usd's broad-based weakness, then briefly jumped to intra-day high at 1.1181 (Reuters) in New York morning before retreating to 1.1138, price last traded near 1.1167 at the close. In other news, Reuters reported Italian Prime Minister Giuseppe Conte confirmed the government's growth forecast for 2019 after national statistics bureau ISTAT revised down its gross domestic product data for the first quarter.  Government estimates for 2019 remain "plausible", Conte told reporters on the sidelines of an event in Rome.  
The coalition of the anti-establishment 5-Star Movement and the right-wing League which took office 12 months ago is forecasting 2019 expansion of 0.2 percent.  
  
The British pound went through a roller-coaster session as despite rebound to 1.2628 in European morning, price continued its recent losing streak and tumbled to a near 5-month trough at 1.2559 ahead of New York open on cross-selling of sterling especially vs euro. However, cable erased its losses and rallied on short covering due to broad-based usd's weakness to an intra-day high at 1.2644 near the close.  
  
On the data front, Reuters reported U.S. consumer prices increased in April, which could support the Federal Reserve's contention that recent low inflation readings were transitory and allow the central bank to keep interest rates unchanged for a while.  
  
Data to be released this week:    
New Zealand market holiday, Australia manufacturing index, business inventories, job ads, Japan manufacturing PMI, China manufacturing PMI, Swiss CPI, manufacturing PMI, Italy manufacturing PMI, France manufacturing PMI, Germany manufacturing PMI, EU manufacturing PMI, EU manufacturing PMI, UK manufacturing PMI, Canada manufacturing PMI, U.S. manufacturing PMI, construction spending and ISM manufacturing PMI on Monday.  
  
New Zealand trade balance, import prices, export prices, Japan business capex, Australia current account, retail sales, RBA rate decision, France budget balance, Italy unemployment rate, UK BRC retail sales, construction PMI, EU HICP, core HICP, unemployment rate, U.S. redbook retail sales, ISM NY index, durable goods and factory orders on Tuesday.  
  
Australia AIG services index, GDP, Japan services PMI, China services PMI, Italy services PMI, France services PMI, Germany services PMI, UK services PMI, EU services PMI, producer prices, retail sales, U.S. mortgage applications, ADP employment change, services PMI, ISM non-manufacturing PMI and Canada labour productivity rate on Wednesday.  
  
Australia trade balance, imports, exports, Germany industrial orders, EU employment, GDP, ECB interest rate decision, U.S. trade balance, jobless claims, labor costs, productivity, Canada trade balance, exports, imports and Ivey PMI on Thursday.  
  
Australia AIG construction index, Japan household spending, coincident index, leading indicator, China market holiday, Swiss unemployment rate, Germany industrial output, exports, imports, trade balance, current account, France current account, trade balance, industrial output, imports, exports, UK house prices, Italy retail sales, U.S. non-farm payrolls, private payrolls, unemployment rate, average earnings, wholesale inventories, wholesale sales and Canada capacity utilisation, employment change, unemployment rate on Friday.