The US dollar is fairly steady today. The buck is slightly higher against the euro and the Japanese yen, while slightly lower against the British pound. Looking at recent history, the dollar surged at the outset of last week and ran out of steam towards the end. The dollar's recent strength against the Japanese yen has helped risk sentiment more generally. The S&P 500 ended the week higher last week, alongside major Asian equity markets such as Hong Kong's Hang Seng Index and Japan's Nikkei 225.
Turning to recent news, China imposed tariffs on 125 US products in retaliation to US tariffs on steel and aluminum. According to Reuters, the new tariffs affect $3b worth of goods. China's Ministry of Commerce (MOFCOM) issued a statement earlier today stating that the US had "seriously violated" the principles enshrined in the WTO. So far, reactions in markets have been fairly limited as traders expected China to retaliate on US tariffs. Whether or not the current tensions escalate into a full-blown trade war remain to be seen. According to several media reports, President Trump is expected to shortly announce $50b of new tariffs on China. Trump claims that China has systematically misappropriated US intellectual property. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.
USD/JPY is up slightly today and currently trading above 106.30. EUR/USD is down slightly and trading above 1.2310. The pound is up, and GBP/USD is currently above 1.4040.
Looking at US economic data this week, traders will be watching non-farm payrolls and sentiment data. On Monday, we’ll see Markit manufacturing PMIs and ISM manufacturing PMIs for March. On Tuesday, FOMC member Kashkari will deliver a speech. On Wednesday, we’ll see Markit services and composite figures, as well as ISM non-manufacturing figures for March. We’ll also see ADP employment changes (March), factory orders (February) and hear a speech by FOMC member Mester. On Thursday, we’ll see the trade balance for February and see initial jobless claims. Friday is the most important day, and we’ll get non-farm payrolls and hourly earnings for March. We’ll also see changes in consumer credit. Last week, Q4 GDP growth (2.9%) beat expectations.
Thanks to recent dollar weakness, we are downgrading the US dollar to bearish. Note that the currency is trading within normal conditions. This is based on technical indicators when looking at a weekly chart.