Market Review - 18/06/2019 23:41GMT
Dollar rises on market optimism on U.S.-China trade talks, euro tumbles after Draghi's dovish comments
The greenback ended mixedagainst its peers on Tuesday but gained vs yen and the Swiss franc after media reported U.S. Trump will hold trade talks with China's Xi at next week's G20 meeting in Japan. Investors remained cautions ahead of Wednesday's Federal Reserve monetary policy decision on Wednesday. The single currency tumbled across the board after ECB President Mario Draghi said the central bank may consider cutting rates.
Versus the Japanese yen, although price dropped in Asian morning on comments from Bank of Japan's Governor Kuroda and briefly spiked down to session lows at 108.07 in New York morning, price swiftly erased its losses as comments from U.S. President Trump triggered renewed optimism over U.S.-China trade, lifting the pair to 108.67 before retreating, price last traded at 108.44 near the close.
Reuters reported in New York morning U.S. President Donald Trump said he would meet with Chinese President Xi Jinping at the G20 summit later this month, and that trade talks between the two countries were set to restart ahead of time. "I had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting," Trump tweeted.
The single currency traded with a firm bias in Asia and rose to session highs at 1.1242 on short covering in early European morning, however, the pair erased its gains and tumbled after ECB Draghi's dovish comments together with weak German data and hit a 2-week low at 1.1182 in Europe before recovering to 1.1212 due partly to intra-day rally in eur/yen cross, price later moved narrowly in subdued trading in New York afternoon.
Reuters reported the European Central Bank will need to ease policy again, possibly through new rate cuts or asset purchases, if inflation doesn't head back to its target, ECB President Mario Draghi said on Tuesday.
"In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required," Draghi told the ECB's annual conference in Sintra, Portugal. "That aim is symmetric, which means that, if we are to deliver that value of inflation in the medium term, inflation has to be above that level at some time in the future."
He added there was still "considerable headroom" for more asset purchases and "further cuts in policy interest rates and mitigating measures to contain any side effects remain part of our tools".
"Will use all the flexibility within our mandate to fulfill our mandate - and we will do so again to answer any challenges to price stability in the future," Draghi said.
Reuters reported the mood among German investors deteriorated sharply in June, a survey showed on Tuesday, with the ZEW institute pointing to recent weak economic data and an escalating trade dispute between China and the United States.
ZEW said its monthly survey showed economic sentiment among investors plunged to -21.1 from -2.1 in May. Economists had expected a drop to -5.9.
A separate gauge measuring investors' assessment of the economy's current conditions edged down to 7.8 from 8.2 the previous month. Markets had predicted a slightly lower reading of 6.0.
The British pound continued its recent losing streak and dropped to 1.2512 in Asian morning, then marginally lower to a 5-1/2 month low of 1.2507 at New York open on continued speculation of a no-deal Brexit. However, cable erased its losses and rallied to session highs at 1.2564 in New York due partly to broad based buying in sterling on short covering especially vs euro.
In other news, Reuters reported Bank of Japan Governor Haruhiko Kuroda said the central bank will "certainly" debate heightening overseas risks at a rate review this week, underscoring concerns among policymakers about the economic fallout of a U.S.-China trade war. The trade frictions and slowing global demand have cast doubt on the BOJ's forecast that Japan's economy will continue to expand moderately, pressuring central bank to deploy additional monetary easing to underpin growth. "As for recent overseas economic developments, there are strong downside risks regarding the Sino-U.S. trade friction and China's economy," Kuroda told parliament on Tuesday.
On the data front, euters reported U.S. homebuilding unexpectedly fell in May, but data for the prior two months was revised higher and building permits increased, suggesting that the housing market was drawing some support from a sharp decline in mortgage rates.
Housing starts dropped 0.9% to a seasonally adjusted annual rate of 1.269 million units last month amid a drop in the construction of single-family housing units, the Commerce Department said on Tuesday.
Data to be released on Wednesday:
New Zealand current account, Japan exports, imports, trade balance, Germany PPI, Italy trade balance, EU current account, construction output, UK CPI, core CPI, RPI, core RPI, PPI input, PPI output, core PPI output, CBI trends, Canada CPI, core CPI, U.S. mortgage applications and Fed interest rate decision.
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