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The Greenback got hit by selling pressure ahead of Trump’s tariff announcement on Chinese goods. And the apparent culprit for the Greenback’s slide is a Reuters report that claimed that the U.S. supposedly has a second list of anti-China tariffs lined up.

The Greenback wasn’t the worst-performing currency of the session, though, since the Swissy was even weaker, which is kinda weird since risk-aversion ramped up because of the trade-related jitters.

Other than those two, the euro and the pound are also worth mentioning since the euro staged a broad-based recovery while the pound caught a bid, despite the lack of catalysts.

  • German WPI m/m: 0.8% vs. 0.3% expected, 0.5% previous
  • Euro Zone final HICP y/y: unchanged at 1.9% as expected
  • Euro Zone final core HICP y/y: unchanged at 1.1% as expected
  • The Euro Zone’s trade balance: €18.1B vs. €20.0B expected, €19.8B previous
  • Trump expected to announce tariffs on Chinese products later

Major Events/Reports:

BOJ Presser

Earlier today, the BOJ announced that its current monetary remains unchanged. However, the BOJ also downgraded its inflation outlook, which implies that the BOJ is not in a hurry to exit its loose monetary policy anytime soon.

BOJ Shogun Kuroda was asked about the BOJ’s monetary policy during the BOJ presser, with special emphasis on the growing divergence between the BOJ’s monetary policy and that of the U.S. and Europe. And Kuroda had this to say:

“Each country must opt for the best monetary policy in light of its economic and price conditions. Japan’s economy is seeing labor markets tighten and the output gap improving, but prices aren’t rising much. As such, it’s most appropriate to patiently maintain our powerful monetary easing.”

Kuroda also discussed why inflation in Japan remains low, namely because of the stubbornly persistent deflationary mindset in Japan.

“There are some factors seen in the United States and Europe that are keeping inflation in Japan subdued. On top of that, there are factors unique to Japan that are weighing on inflation. That’s the deflationary mindset of households and companies, which became entrenched due to 15 years of deflation.”

“Short-term inflation expectations tend to move in response to underlying price moves. But medium- and long-term inflation expectations aren’t rising much. That’s due to Japan’s deflationary mindset.”

Kuroda was also asked if the BOJ has any plans to exit its loose monetary policy and Kuroda basically said “not yet, but we will in time” when he said the following.

“Core consumer inflation is moving around 0.5 to 1 percent, still distant from our 2 percent target. It’s premature to talk about specific means and procedures for an exit. What’s important now is to do our best to achieve 2 percent inflation. When the appropriate time comes, the BOJ is ready to offer appropriate communication to markets.”

U.S. will impose even more tariffs against China?

According to a Reuters report, the U.S. is supposedly nearly done with another list of tariffs on Chinese goods to the tune of $100 billion.

Again, that’s a separate list from the list of $50 billion worth of Chinese goods that’s expected to be released later today, and is in keeping with Trump’s proposal to impose more tariffs against China back in April.

And according to the unnamed sources cited in the Reuters report, “the list would take aim at products for which China supplied 33 percent or less of total U.S. imports in individual product categories.”

This will supposedly make it easier for the U.S. to find other suppliers, thereby limited the negative effects on the U.S. economy.

China will retaliate against U.S. tariffs

Chinese Foreign Ministry Spokesman Yan Shuang was asked during a presser earlier about the “kind of countermeasures” China will take in response to Trump’s expected tariffs.

And Yan Shuang responded by reiterating Beijing position that:

“[I]f the U.S. side introduces trade sanctions including the increase of tariffs, all the economic and trade achievements negotiated by the two parties will not take effect.”

He also stated that if the U.S. pushed through with its tariffs, then China will respond swiftly. The spokesman didn’t specify a specific countermeasure, though.

“[I]f the U.S. side adopts unilateralism and protectionism and damages China’s interests, we will respond in the first instance and take necessary measures to firmly safeguard our legitimate rights and interests”

India hops aboard the trade war crazy train

I’ll just leave this here…

Risk-off ending in Europe

The major European equity indices were broadly in the red during the morning London session.

And market analysts were quick to blame the risk-off vibes on trade war jitters because of Trump’s expected tariffs announcement that will push the U.S. and China closer towards a full-scale trade war.

  • The pan-European FTSEurofirst 300 was down by 0.40% to 1,530.23
  • Germany’s DAX was down by 0.33% to 13,063.22
  • The blue-chip Euro Stoxx 50 was down by 0.37% to 3,519.95

U.S. equity futures were also feeling the heat.

  • S&P 500 futures were down by 0.40% to 2,777.25
  • Nasdaq futures were down by 0.22% to 7,295.00

Major Market Mover(s):

USD

The Greenback was broadly lower ahead of the Trump’s expected tariffs announcement on $50 billion worth of Chinese goods.

And the apparent catalyst for the Greenback’s broad-based slide is the Reuters report that I mentioned earlier since the Reuters report claimed that the U.S. has another list of tariffs on $100 billion worth of Chinese goods, which is in addition to the $50 billion worth of tariffs that’s expected to be released later today, and pushed the U.S. and China closer to a full-scale trade war.

USD/JPY was down by 17 pips (-0.16%) to 110.70, USD/CAD was down by 7 pips (-0.05%) to 1.3129, AUD/USD was up by 8 pips (+0.11%) to 0.7473

CHF

The Greenback was weak but the Swissy was even weaker, which is kinda weird since the risk aversion was the dominant sentiment in Europe because of trade-related concerns.

Since there are no apparent catalysts, I’ve got a feeling in my gut that the SNB is sneakily weakening the Swissy again in order to dissuade safe-haven demand for the Swissy.

USD/CHF was up by 7 pips (+0.07%) to 0.9984, NZD/CHF was up by 15 pips (+0.12%) to 0.6942, AUD/CHF was up by 18 pips (+0.25%) to 0.7460

EUR

The euro staged a broad-based recovery during the session, losing out only to the Greenback. There were no major catalysts for the euro’s recovery so we’re likely seeing some short covering by EUR bears after the euro tanked hard in the wake of the ECB statement yesterday.

Other than that, some market analysts also said that banks have finished pricing in the ECB’s forward guidance on interest rates. Basically, banks and other large players were expecting the ECB to start hiking in June, but the ECB’s forward guidance forced banks to adjust their positions to reflect an October rate hike.

EUR/USD was up by 27 pips (+0.24%) to 1.1589, EUR/JPY was up by 11 pips (+0.08%) to 128.29, EUR/CHF was up by 33 pips (+0.29%) to 1.1570

GBP

The pound caught a bid at the start of the session and then continued to trade higher across the board. There were no apparent catalysts, though, and market analysts were only pointing out the pound’s rise without really citing a possible trigger for the rise.

The BOE statement is coming up next week, though, so it’s possible that we’re seeing some preemptive positioning and/or short-covering ahead of that top-tier event.

GBP/USD was up by 37 pips (+0.29%) to 1.3276, GBP/JPY was up by 20 pips (+0.14%) to 146.97, GBP/CHF was up by 44 pips (+0.33%) to 1.3255

Watch Out For:

  • 12:30 pm GMT: U.S. Empire State manufacturing index (18.8 expected vs. 20.1 previous)
  • 12:30 pm GMT: Canadian foreign security purchases ($5.49B expected vs. $6.15B previous)
  • 12:30 pm GMT: Canadian manufacturing sales (0.6% expected, 1.4% previous)
  • 1:15 pm GMT: U.S. industrial production (0.2% expected, 0.7% previous)
  • 1:15 pm GMT: U.S. capacity utilization rate (78.1% expected, 78.0% previous)
  • 1:30 pm GMT: CB’s U.K. leading index (-0.2% previous)
  • 2:00 pm GMT: University of Michigan’s preliminary consumer sentiment (98.5 expected vs. 98.0 previous)
  • Trump expected to announce tariffs on Chinese products