Dollar, Stocks Firm but Trade War Fears Linger
The U.S. Dollar rallied against a basket of currencies on Tuesday, reversing Monday’s sell-off as increased appetite for risk on Wall Street led to the shedding of safe-haven assets like the Japanese Yen and Swiss Franc.
June U.S. Dollar Index futures settled at 89.859, up 0.153 or +0.17%.
The price action may be indicating that investors have absorbed Sunday’s move by China to place tariffs on $3 billion in imports of U.S. food and other goods in response to U.S. tariffs of aluminum and steel. That may have been the first shot in what could develop into a full-blown trade war.
The other shoe could drop later this week with the Trump administration expected to announce this week U.S. tariffs on $50 billion to $60 billion in Chinese imports. On Tuesday China’s ambassador to the United States said Beijing will take counter-measures of the “same proportion” and scale if Washington imposes further tariffs.
Overall, it looks the roller-coaster-like trading in the dollar is likely to continue with the Greenback supported by expectations for further monetary policy tightening from the Fed, and limited or pressured by ongoing political pressures and global trade uncertainties.
U.S. Economic News
There were no major economic reports on Tuesday. Minor reports included IBD/TIPP Economic Optimism which came in below expectations at 52.6. Total Vehicle Sales were up 17.5 Million.
Late Tuesday, Fed Governor Lael Brainard said in a speech that even with this year’s correction, stocks and other assets are still high by historical standards.
“Valuations in a broad set of markets appear elevated relative to historical norms, even after taking into account recent movements,” Brainard said during a speech in New York, according to prepared remarks.
Gold
Gold prices took a hit on Tuesday, driven by lower demand for safe haven assets after the stock market firmed. The U.S. Dollar also strengthened as the easing of fears of an even steeper sell-off in equities led investors to dump the safe haven Japanese Yen. The rise in the dollar made gold a less-desirable investment.
Crude Oil
A rebound in demand for higher risk assets helped crude oil recover some of the previous session’s losses. Also lending support for U.S. West Texas Intermediate and international-Brent crude oil was Russian Energy Minister Alexander Novak’s comments on Tuesday that a joint organization for cooperation between OPEC and non-OPEC countries may be set up once the current deal on oil output curbs expires at the end of the year.
This article was originally posted on FX Empire