Dollar tumbles on escalation of U.S.-China trade war and falling U.S. yields and equities

Market Review - 24/08/2019  05:13GMT  

Dollar tumbles on escalation of U.S.-China trade war and falling U.S. yields and equities

The greenback tumbled across the board in New York session as investors sold dollar broadly due to escalation of U.S.-China trade war and falling U.S. yields as U.S. President Trump hit back on China with additional set of tariffs after China Commerce Ministry announced earlier on Friday retaliatory tariffs against about $75 billion worth of U.S. goods. The benchmark 10-year yield fell sharply from 1.663% to a low as 1.506%, the Dow closed down 623 points or -2.37%  
  
China's Commerce Ministry said in a statement ahead of New York open it would impose additional tariffs of 5% or 10% on a total of 5,078 products originating from the United States that include agricultural products, crude oil, small aircraft and cars. Tariffs on some products would take effect on Sept. 1 and others on Dec. 15.  
  
Reuters reported U.S. Trump later lashed back at a new round of Chinese tariffs by heaping an additional 5% duty on some $550 billion in targeted Chinese goods in the latest tit-for-tat trade war escalation by the world's two largest economies.  Trump's move, announced on Twitter, came hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. goods, prompting the president earlier in the day to demand U.S. companies move their operations out of China.   The intensifying U.S.-China trade war stoked market fears that the global economy will tip into recession, sending U.S. stocks into a tailspin, with the Dow down 2.37%, Nasdaq Composite down 3%, and the S&P 500 down 2.6%.  
  
Versus the Japanese yen, although dollar traded with a firm bias in Asia and briefly climbed to session highs at 106.73 just ahead of New York open, however, price quickly dropped to 106.40 at New York open on China's retaliatory tariffs. Intra-day decline accelerated in New York morning as President Trump threatened China with additional measures and later price hit an intra-day low at 105.26 in New York afternoon due to active safe-haven yen buying.  
  
Although the single currency remained under pressure in Asia and dropped to a 3-week low of 1.1052 in European morning. However, euro erased its losses and rallied in New York morning on usd's broad-based weakness due to renewed U.S.-China trade war and later hit session highs of 1.1153 New York afternoon.  
  
The British pound also remained under pressure in Asia and dropped to session lows at 1.2195 in early European morning due partly to cross-selling in sterling especially vs euro. However, cable then erased its losses and rallied to a 3-week high at 1.2296 (Reuters) near New York close on dollar's broad-based selloff.  
  
In other news, Reuters reported the U.S. economy is in a "favorable place" and the Federal Reserve will "act as appropriate" to keep the current economic expansion on track, Fed chair Jerome Powell, in his prepared remarks on Friday at Fed's annual symposium at Jackson Hole, Wyoming that gave few clues about whether the central bank will cut interest rates at its next meeting or not.  

The chair, under pressure from President Donald Trump to cut rates soon and deeply, listed a series of economic and geopolitical risks that the Fed is monitoring -- many of them, Powell noted, linked to the administration's trade war with China and other countries.  But "the U.S. economy has continued to perform well overall," Powell said in keynote remarks at an annual Fed economic symposium at this mountain retreat. "Business investment and manufacturing have weakened, but solid job growth and rising wages have been driving robust consumption and supporting moderate overall growth."    
If the trade wars have disrupted business investment and confidence and contributed to "deteriorating" global growth, Powell said the Fed could not set all that right through monetary policy.  There are "no recent precedents to guide any policy response to the current situation," Powell said, adding that monetary policy "cannot provide a settled rulebook for international trade."  
  
Data to be released this week :  
  
New Zealand imports, exports, trade balance, Japan coincident index, leading economic index, Germany Ifo business climate, current conditions, expectations, U.S. durable goods, Chicago national activity and Dallas Fed manufacturing index on Monday.  
  
Germany GDP, France business climate, consumer confidence, UK mortgage approvals, U.S. redbook, home price index, consumer confidence and Richmond Fed manufacturing on Tuesday.  
  
UK BRC retail sales, Germany Gfk consumer sentiment, Italy business confidence, consumer confidence, investor sentiment and U.S. mortgage applications on Wednesday.  
  
New Zealand business outlook, Australia capital expenditure, building capex, Japan consumer confidence, Swiss non-farm payrolls, France consumer spending, GDP, Germany import prices, unemployment change, unemployment rate, CPI, HICP, Italy industrial orders, industrial sales, PPI, EU business climate, industrial sentiment, services sentiment, consumer confidence, Canada current account, U.S. GDP, PCE, wholesale inventories, jobless claims, trade balance and pending home sales on Thursday.  
  
New Zealand building permits, Japan Tokyo CPI, unemployment rate, industrial output, retail sales, housing starts, building permits, construction orders, Australia building permits, UK house price index, Germany retail sales, France, PPI, CPI, budget balance, Swiss KOF indicator, Italy unemployment rate, CPI, GDP, EU HICP, core HICP, unemployment rate, Canada PPI, GDP, U.S. personal income, personal spending, PCE, core PCE and Chicago PMI on Friday.