The US dollar is currently selling off against safe havens such as the Japanese yen, while strengthening against "risk-on" currencies such as the Australian dollar. Recent movements in the dollar suggest that risk appetite is waning. Yesterday, US stock markets (such as the S&P 500) fell after various media outlets reported that President Trump was seeking to reduce the size of the trade deficit with China by $100b a year. According to a report by Politico, The Office of the U.S. Trade Representative has recommended tariffs on imports of $30b a year. Trump administration officials rejected the recommendation, and asked to target a larger number of imported goods and services. Riskier assets such as equities and commodities fell following the news, while safe havens such as US Treasuries and the yen rallied. Turning to other news, Trump appointed economic commentator Larry Kudlow to replace Gary Cohn as director of the White House national economic council. While Kudlow stated that he would like to see the dollar a "bit stronger than it is currently", his comments had a limited reaction in foreign exchange markets.
Looking at recent data, month-over-month retail sales figures missed estimates, suggesting a slowing pace of future growth. As consumption is a significant portion of the US economy, retail sales have an outsized impact on future growth. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.
USD/JPY is down today and currently trading above 106.0. EUR/USD is flat and trading above 1.2370. The pound is up slightly, and GBP/USD is currently above 1.3970.
Turning to US economic data this week, markets will be focused on inflation and retail sales figures. The consumer price index (2.2%) and core CPI (1.8%) both met expectations. MoM march retail sales (-0.1% vs. 0.3% expected) missed consensus estimates. The YoY producer price index (2.5%) met expectations for February. Later today, we'll get initial jobless claims, the Philly Fed manufacturing survey and the NAHB housing market index. Finally on Friday, we'll see a number of figures relating to housing (housing starts, build permits), industrial production and capacity utilization. Last week, non-farm payrolls came in above expectations while wage growth failed to meet expectations.