The US dollar is mostly weaker today. The buck is selling off against the yen, the British pound and the euro while strengthening against commodity currencies such as the Australian dollar. Yesterday, the dollar began selling off during European trading hours. The currency weakened following an announcement regarding a Brexit transition deal and a Reuters report suggesting that the ECB is "broadly comfortable" with the market anticipating rate hikes in Q1 2019. As the British pound and euro strengthened in response to the news headlines, the dollar weakened in relative terms.
Turning to recent news, President Trump is expected to implement $60b a year worth of tariffs against China on Friday. According to Reuters, the tariffs will be aimed at information technology, consumer electronics and telecoms. While the threat of a trade war has been negative for the dollar so far (as America's trading peers refrain from intervening in their respective currencies), a full-blown trade war is likely to send the dollar higher. Beyond lower US imports driving the dollar higher, the buck is likely to rally given its safe haven status. In recent history, the Canadian dollar has weakened against the US dollar given NAFTA-related fears. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.
USD/JPY is up today and currently trading above 106.40. EUR/USD is up slightly and trading above 1.2340. The pound is up, and GBP/USD is currently above 1.4050.
Looking at US economic data this week, markets will be looking forward to Jerome Powell’s first FOMC meeting, durable goods orders and existing home sales. Tomorrow, is the most important day, and we’ll get existing home sales and the Fed’s monetary policy statement, interest rate decision, economic projections and press conference. Markets are expecting the Fed to raise interest rates by 0.25% and signal further hikes this year. On Thursday, we’ll see initial jobless claims, the housing price index for January and March preliminary Markit services and composite PMIs. On Friday, we’ll hear from FOMC members including Bostic and Kashkari. We’ll also get February durable goods and February new home sales. Last week, headline inflation and core inflation met expectations.