Dollar climbs vs G5 currencies but drops vs yen and chf on risk-aversion

Market Review - 15/08/2019  00:00GMT  

Dollar climbs vs G5 currencies but drops vs yen and chf on risk-aversion

The greenback ended higher against majority of its peers on Wednesday, except for safe-haven Japanese yen and Swiss Franc as the U.S. bond yield curve between 2- and 10-year Treasury yields inverted for the first time since 2007 and raised concern of the possibility of a recession. The Dow also took a hit and fell 800.49 points, or 3.05%.  
  
Reuters reported the inversion of the U.S. Treasury yield curve is yet another signal that the Federal Reserve needs to cut interest rates, White House trade adviser Peter Navarro said on Wednesday.  "The kind of volatility you see today in the inversion of the yield curve is sending yet another signal that the Fed needs to lower ... interest rates by 50 basis points as quickly as possible," Navarro told Fox Business Network.  
  
Versus the Japanese yen, dollar initially dropped to 106.25 in Asia on downbeat China data. Despite staging a recovery to 106.62, price tumbled to session lows at 105.66 in New York on risk-averse buying of jpy on global growth concerns together with a selloff in U.S. Treasury yields and equities.  
  
Reuters reported growth of China's industrial output slowed much more than expected to 4.8% in July from a year earlier, official data showed on Wednesday, in the latest sign of faltering demand in the world's second-largest economy as the United States ramps up trade pressure.   
The July pace was the slowest since Feburary 2002.   Analysts polled by Reuters had forecast industrial output would rise 5.8% from a year earlier, slowing from 6.3% in June.    
Retail sales growth was also weaker than expected, increasing 7.6% in July from a year earlier, compared with 9.8% in June. Analysts surveyed by Reuters had expected growth of 8.6%.   
  
The single currency gained from Asian low at 1.1166 to session highs at 1.1190 at New York open, however, price met renewed selling there and later fell to an intra-day low at 1.1131 in New York afternoon on active risk-aversion.  
  
Germany's economy shrunk by 0.1% in the three months to June, caught in the cross-fire of the trade war between U.S. and China.    
Preliminary figures released on Wednesday by the state statistics office Destatis also showed that the annual rate of growth in Europe's largest economy slowed to zero, the worst performance since 2013, when the euro zone was still struggling with the hangover from its sovereign debt and banking crisis.  Gross domestic product still rose 0.4% on the year when adjusted for the lower number of working days this year. The numbers were in line with consensus forecasts.  
  
The British pound briefly fell to session lows at 1.2045 in Asian morning before rallying to an intra-day high at 1.2101 ahead of New York open after UK inflation picked up in July. However, cable pared its gains and retreated strongly to 1.2051 near New York close due partly to renewed Brexit concerns.  
  
Reuters reported Britain's inflation rate unexpectedly overshot the Bank of England's 2% target on Wednesday, raising the cost of living even before sterling's recent slide has had a chance to feed into consumer prices.   Prices rose at an annual rate of 2.1% in July after 2.0% consumer price inflation in June, the Office for National Statistics said, bucking the average expectation in a Reuters poll of economists for a fall to 1.9%     

Reuters reported Prime Minister Boris Johnson said on Wednesday that some British lawmakers who thought they could bloc Brexit were engaging in a "terrible" collaboration with the EU.  "There is a terrible kind of collaboration as it were going on between those who think they can block Brexit in parliament and our European friends," Johnson said in a "People's PMQs" question-and-answer session on Facebook.  "Our European friends ... are not compromising at all," Johnson said. He added that the longer the impasse continued, the more likely a no-deal Brexit became.  
  
In other news, Reuters reported there were no concessions from China for the U.S. decision to postpone tariffs on some Chinese imports until mid-December, U.S. Commerce Secretary Wilbur Ross said on Wednesday, adding that it was too early to assess where U.S.-China trade talks stand.  Ross, speaking in an interview on CNBC, added that while further telephone conversations are planned, a date has not been set for another round of in-person discussions.  
  
On the data front, Reuters reported U.S. import prices unexpectedly rose in July, but the underlying trend remained weak, pointing to subdued imported inflation.    
The Labor Department said on Wednesday import prices increased 0.2% last month as a rebound in the cost of petroleum products offset declines in prices for capital goods and motor vehicles. Data for June was revised down to show import prices dropping 1.1% instead of falling 0.9% as previously reported.    
Economists polled by Reuters had forecast import prices would be unchanged in July. In the 12 months through July, import prices dropped 1.8% after decreasing 2.0% in June.  
  
Data to be released on Thursday:  
  
Italy market holiday, China China house prices, Australia employment change, unemployment rate, Japan industrial output, capacity utilization, Swiss producer import price, UK retail sales, retail sales ex-fuel, retail sales import price, NY Fed manufacturing, initial jobless claims, labor costs prelim, productivity prelim, retail sales ex-autos, retail sales, industrial production, capacity utilization, manufacturing output, industrial production and Canada ADP employment change.