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The long-threatened tariffs against Chinese, Canadian and Mexican goods finally came into effect on Tuesday. Despite the threat of such tariffs being a major driver in the Dollar’s strength since Election Day, the Greenback has seen significant back-to-back losses so far this week. Perhaps a “buy the news – sell the event” kind of response, or perhaps investors are beginning to rebalance the underlying fundamentals of the world’s largest economy. The latest round of US manufacturing data came in lower than expected on Monday but more worryingly, the report also revealed drops in new orders and employment. US stock indices have had a rough time of it so far this week, with all three majors getting hammered to the downside over the last two sessions.
Investors may justify such movements however they please, but the fact is that there are clear outflows from the Dollar, allowing the Euro in particular to do some much needed catching up. The common currency remains near historical lows, but did manage to climb up to $1.06 yesterday for the first this year. A similar story for Cable, which stopped just shy of $1.28 on Tuesday. Weakness in the Dollar also helped to give gold a leg up early this week, with bullion prices rising to highs of $2,929 an ounce.
Crude oil prices have absolutely no grounds for optimism in light of the current macro environment. Trade wars, the potential for weaker growth, not to mention planned production increases for OPEC+ members together all pushed crude to fresh yearly lows yesterday. Brent is now swapping hands for just $70 a barrel, while WTI is down to just $67. The oil cartel self-imposed a production cut of 5.85 million barrels per day back in 2022 in order to support markets, but elected to phase out such restrictions starting in April.
The last couple of days have been anything but muted in terms of trading activity, and a glance at the economic calendar shows the week is far from over. Traders have an easy start with European services PMI data but things may ramp up with ADP employment numbers later in the day. Tomorrow, another 25-bps cut is pencilled-in for the Euro but the event everyone is waiting for is of course Non-Farm Payrolls on Friday. No rest for the wicked.
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