The US dollar staged a strong rally when risk-off vibes returned on trade war jitters. However it was still weaker compared to the Japanese yen. Data was mostly in line with expectations, although the flash services PMI missed the consensus. Durable goods orders data are up for release today but the focus would likely be on the US tariffs. Trump signed a memorandum to impose higher tariffs on nearly $60 billion worth of Chinese goods from companies involved in U.S. intellectual property theft, spurring a sharp selloff in higher-yielding assets.


The euro tumbled as most of its PMI readings came in weaker than expected. Even the German Ifo busi-ness climate index fell from 115.4 to 114.7, but the current account balance of the region beat expecta-tions. There are no major reports due from the euro zone today so the shared currency could be more sensitive to market sentiment or its counterparts’ movements.


The pound got a boost from upbeat UK retail sales, which printed a 0.8% gain versus the estimated 0.4% uptick. The BOE decision was in line with expectations of no changes to interest rates or asset purchases, but the MPC minutes turned out hawkish since a couple of members voted to hike. MPC member Vlieghe has a speech coming up next.


The franc scored strong gains as risk aversion returned to the markets starting from the European ses-sion. The franc rally gained further traction during the New York session when fears of a trade war escalated. There were no reports out of the Swiss economy then and none are due today so sentiment could push franc pairs around.


The yen was also a big winner as it took advantage of risk-off moves and dollar weakness. Japan’s flash manufacturing PMI was actually weaker than expected while the national core CPI came in line with ex-pectations of a 1.0% figure. There are no other reports due from Japan so bond yields and sentiment could be the main driving factors.

Commodity Currencies (AUD, NZD, CAD)

The commodity currencies were worst-hit by trade war fears as their respective economies would be directly hit if tensions between the US and China heat up. However, the focus could switch back to Canadian fundamentals as CPI and retail sales figures are up for release. Weaker than expected reports, could drive the Loonie lower, especially if oil suffers another leg down.

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