Dollar is trading as the strongest one, partly helped by the post ECB selloff in Euro. The greenback is extending it’s strong, broad based gains in Asian session today especially against commodity currencies. But whether the Dollar could end the week as the strongest would depend on market reactions to announcement of Section 301 tariffs against China.
Currently, the EUR/USD pair is trading at 1.1564 facing its worst weekly losses since November 2016. ECB announced the end of the QE program yesterday, but still, the EUR dropped more than 200 pips as the central bank pushed out the first rate hike to end 2019. As the Fed is planning to hike rates at a faster rate while now the ECB is at least 1.5-years away from a rate hike, the rally for the EUR has probably ended.
The Japanese Yen reported losses in Asia and could extend the decline in Europe as the Bank of Japan squashed the already low odds of the QE taper by offering a bleaker view on inflation. The BOJ’s move to cut assessment of inflation only underscored the rising divergence between the central bank and its peers – Fed and ECB, so, yield differentials will likely continue rising in the JPY-negative manner soon. Only a full-fledged trade war and risk aversion could put a strong bid under the anti-risk JPY.
The GBP/USD is down into two-week lows heading into Friday’s London markets, following Thursday’s intense drop-off. The Sterling lifted on Thursday following better-than-expected Retail Sales for the UK, bur after ECB’s Mario Draghi pushed out expectations of a rate hike for the EU into 2019, markets reacted by pushing the dollar higher against the pound. The dollar extended its rally, with economic data for the US widely beating expectations, pushing GBP further down heading into the end of the week.
Traders continue to express their bullish and bearish views on Oil which has seen prices test both the upper and lower ends of the near-term ranges as headline risk remain the primary driver of volatility. But given the signals from Saudi Arabia and Russia that view easing of production limits as inevitable, the market is still is still left wondering how much and when.
Gold is trading above the critical $ 1300 despite the USD dollar running on overdrive. As US-China trade deadline looms ominously, an escalation of trade war could prove extremely disruptive for financial markets and Gold could hold it bid as we enter another phase of geopolitical uncertainty.