The US dollar is selling off today after moving sharply lower yesterday. The latest catalyst for dollar weakness is the resignation of White House Economic Adviser Gary Cohn. Cohn, a former management executive at Goldman Sachs, is opposed to President Trump's tariffs and has resigned as a result. His departure has stoked fears of an imminent trade war. At a press conference yesterday, Trump said trade wars hurt opponents more than the US. According to a report by Bloomberg, the trade deficit with China is a major target of Trump's actions. Trump is exploring a range of tariffs and a potential clampdown on Chinese investment into the United States. Looking at reactions across markets, the Japanese yen is rallying while commodities and equities are falling. This is the classic "risk off" response as fears rise. While the dollar is selling off on trade wars fears for now, expect the dollar to strengthen in the longer-term. The dollar is most likely to rally against the national currencies of countries targeted by Trump, such as the Chinese yuan and the euro. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.
USD/JPY is down sharply today and currently trading above 105.50. EUR/USD is up slightly and trading above 1.2420. The pound is flat, and GBP/USD is currently above 1.390.
Turning to US economic data this week, markets will be focused on PMIs and non-farm payrolls. Markit composite PMIs (55.8 vs. 55.5 expected) and ISM non-manufacturing PMIs (59.5 vs. 59 expected) both beat expectations. Fed Vice Chair Randal Quarles called for easing banking regulations (specifically: "material changes" to the Obama-era Volcker Rule). MoM factory orders (-1.4%) met expectations. Fed voting member Brainard said economic tailwinds could accelerate future rate hikes. Later today, we'll get ADP employment changes, the trade balance, consumer credit, and nonfarm productivity. We'll also hear speeches from Fed members including Kaplan, Bostic and Dudley. On Thursday, we'll see initial jobless claims. On Friday, the most important day, we'll see nonfarm payrolls numbers, hourly earnings and the participation rate. Last week, Core PCE figures came within expectations.