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Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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The lure of US dollars
Michael O’Neill
FX Trader, Loonieviews.net
Summary: King Dollar reigns supreme in foreign exchange markets today as a wave of risk-off sentiment and some positive US data sparked a flight to the robust reserve currency.
Glenn Frey once sang that “the lure of easy money was the smuggler’s blues”; today, he would be singing “the lure of US dollars is what the risk-averse choose.” The dollar has been in demand all week, and only JPY and CHF have avoided losses. It opened on a strong note in New York this morning and extended its gains in early trading. The greenback got an assist from the better-than-expected Jobless Claims report, although employment isn’t an issue with the Fed at this time.
A comment from Chinese Ministry of Commerce spokesman Gao Feng suggesting trade talks are on hold for the foreseeable future triggered the latest surge in risk-aversion. He said “If the US would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue.”
GBPUSD traders would prefer it if they only had to worry about ever-shifting sentiment around the US/China trade drama. The UK political farce and its implication for Brexit have led to a 4.2% drop in the currency pair since the beginning of the month. The hostile reaction to Prime Minister Theresa May’s fourth attempt at getting approval for her Brexit plan has put her head on a chopping block. Rumours are rampant that the axe will fall tomorrow or just after President Trump’s visit on June 10. Nevertheless, GBPUSD has clawed back some of this morning’s losses in the wake of EURUSD weakness.
EURUSD plunged from 1.1141 to 1.1107 in New York trading. Better than expected jobless claims data exacerbated dollar demand from risk-off sentiment and worries around the European Union elections. However, prices rebounded into the 10:00 am EDT New York option cut.
Wall Street is taking the escalation in US/China trade tensions to heart. Traders added to yesterday’s losses at the open with Dow Jones Industrial Average falling 400 points. Prices have since recovered, albeit modestly.
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