Dollar gains on renewed U.S./China trade tensions

Market Review - 11/09/2018   23:45GMT  

Dollar gains on renewed U.S./China trade tensions

The greenback ended broadly higher against its G5 peers on Tuesday on renewed trade tensions between U.S. and China following news report that China will ask World Trade Organization next week for permission to impose sanctions on the United States. Despite rising to 5-week high in Europe, sterling tumbled as Brexit optimism faded.  
  
Reuters reported China will ask the World Trade Organization next week for permission to impose sanctions on the United States, for Washington's non-compliance with a ruling in a dispute over U.S. dumping duties that China initiated in 2013, a meeting agenda showed on Tuesday.   
  
The request is likely to lead to years of legal wrangling over the case for sanctions and the amount. Last year China won a WTO ruling in the dispute, which related to several industries including machinery and electronics, light industry, metals and minerals, with an annual export value of up to $8.4 billion.   
  
Versus the Japanese yen, dollar found renewed buying at 111.07 in Australia and jumped to 111.44 at Asian open on cross-buying in yen, then ratcheted higher to 111.57 in European morning. Despite retreating to 111.29, broad-based usd's strength and rising U.S. Treasury yields pushed the greenback to session highs of 111.64 in New York before moving narrowly in New York afternoon.  
  
The single currency went through a roller-coaster ride. Although euro initially dipped to 1.1577 in Asian morning then rallied to 1.1644 in European morning on dollar's weakness, price erased intra-day gains and fell in tandem with sterling to session lows at 1.1565 at New York open. Later, the pair staged a short-covering rebound due to a report in German magazine Spiegel about a potential Commerzbank merger with Deutsche Bank, price later recovered to 1.1612 ahead of New York close.  
  
Reuters reported executives of Deutsche Bank and Commerzbank are increasingly open to the idea of a merger of Germany's two largest banks, magazine Der Spiegel reported on Tuesday.   
  
It cited one person as saying that Commerzbank Chief Executive Martin Zielke "would rather do it today than tomorrow", but that new Deutsche Bank CEO Christian Sewing had said internally a merger was not on the agenda in the next 18 months.  
  
The British pound went through a volatile session. Although cable extended gains from Monday and rose to a fresh 5-week peak at 1.3088 in European morning on Brexit optimism, price spiked down to 1.2989 after China asked WTO permission to impose sanctions on the United States before recovering to 1.3049, however, the pound then fell sharply to session lows at 1.2961 (Reuters) at New York open after Evening Standard's report before staging another jump to 1.3042 shortly after due to Irish Prime Minister Varadkar's comments. Later, price retreated to 1.2975 on usd's strength before rebounding to 1.3042 in tandem with euro on short-covering in New York afternoon.  
  
Evening Standards reported sources in Brussels are complaining about British "over-spin" and say UK officials are "misreading" upbeat statements from Brussels, Paris and Berlin. The bloc has not changed its mind about Chequers, it was stressed. A senior EU source directly involved in the Brexit talks said: "There is no change on substance." Another source added: "The Brits are probably hoping we will change our red lines. This will not happen."  
  
BBC reported Irish Prime Minister (Taoiseach) Leo Varadkar has said a deal between the EU and UK on the border can be done by within weeks.  
  
The Taoiseach said he agreed with Michel Barnier's assessment that a Brexit deal is possible within six to eight weeks.  
  
"We need to do it too because you know the longer we leave it the longer we wait until we have an agreement," Mr Varadkar added.  
  
He insisted a deal was possible in October but "may well run into November".  
  
In other news, Reuters reported Britain's Finance Ministry said on Tuesday that Bank of England Governor Mark Carney had agreed to extend his term until the end of January 2020.   
  
The Finance Ministry also announced that BoE Deputy Governor Jon Cunliffe had been reappointed for a further term that will last until October 2023.   
  
On the data front, the UK unemployment rate held as expected at 4.0% in July. The number of people in employment in the UK rose 3,000 in the three months to August, compared to the 27,000 expected.  
  
The claimant count, which measures the change in the number of people claiming unemployment benefits rose 8,700 in August from 10,200 in the three months to July. July's data was revised from an initial reading of 6,200. Economists had forecast an increase to 10,000.  
  
Average earnings, including bonuses, pay growth rose by an annual 2.6%. Analysts had expected the reading to hold steady at June's 2.4% gain.  
  
Data to be released on Wednesday :  
  
Japan business survey index, Australia consumer sentiment, Italy industrial output, EU employment change, industrial production, U.S. MBA mortgage application, PPI, beige book, and Canada capacity utilization.