Forex today: dollar king as markets take Trump's tariff threats seriously

.Forex today was in a defensive environment where investors were moving out of risk responding negatively to the Trump administration's planned tariffs which sent markets risk-off in European and US trade where stock prices took a turn for the worse.

However, the US dollar was performing well while US 10yr treasury yields climbed from 2.92% to 2.86%, before slipping again late NY to 2.84%. At the same time, and ahead of the US CPI data tonight,  US PPI was firm and making for a positive foundation for the inflation figure on both a monthly and yearly basis. The Fed fund futures yields continued to price 1 ½ more hikes in 2018. DXY ranged between 94.0910-94.7690 and traded at the top of that range for the best part of the NY session. 

Currency action

The euro was dropping from 1.1750 to 1.1675 while the market wasn't sucked into the ‘sources’ story of the ECB attempting to keep a rate hike on the horizon. Instead, EUR/JPY's slide on sour risk was dominant and a wider DE-US spread along with German political concerns also add weighed in on the single currency.  As for sterling, it too was on the back foot for political reasons, with Brexit and global trade fears continuing to weigh, despite BOEWATCH  seeing a 62% chance of a rate hike. EUR/GBP ended the North America session at  0.8842, managing a bid from the  Europe low 0.8829 due to the on talk of Jul 2019 ECB rate hike. USD/JPY  broke up out of the 18 month-long channel pattern and climbed from 111.00 to 112.17 and made the highest level since January despite the risk-off feel, instead, succumbing to the dollar's dominance. The market has concluded that Trump is not bluffing on tariffs and this has triggered a bid in the mighty greenback. As for the antipodeans, as most sensitive to the trade war news, were the weakest of the pack. The Kiwi fell from 0.6820 to 0.6760 while the Aussie was the worst performer of the two, falling to 0.7365 from 0.7420. AUD/USD is the proxy for China economic issues and the losses in the equities and industrial metals and souring risk sentiment also weigh on the currency; ( CRB finished below 200 DMA for the first time since Oct 2017).

Key notes from US session:

Wall Street's winning streak comes to an end as trade fears resurface

Key events ahead:

Analysts at Westpac explained their outlook for the key events coming up: "The Bank of Korea is expected to keep its benchmark rate at 1.50%, where it has been since November 2017 when it was raised from a record low 1.25%. Inflation pressures are muted and US-China trade tensions add to risks to the outlook.

June CPI is the key US data this week. Consensus is 0.2% m/m for both overall inflation and the ex-food & energy measure, for annual rates of 2.9% and 2.3% respectively. While the Fed’s preferred inflation measure is running nearer 2.0%, markets do often react to surprises in this report.

Regional Fed presidents Kashkari (very dovish) and Harker (centrist) are listed to speak. Neither will vote at FOMC meetings until 2020."