Forex today: Nevermind the U.S. session, Trump announces tariffs on Mexico in early Asia

• Risk-off is the theme for markets.
• Trump tightening the screws across the Mexican border and will apply tariffs on Mexican imports. 

Forex today was risk-off and we are seeing the echoes of this already, just ahead of the Tokyo open as Trump kicks up the trade war dust, this time targeting all Mexico imports - A fresh development in markets that came about in early Asia. 

Major news

In an unexpected act, Trump has just stepped up the trade war angst in markets..read more here:

• USD/MXN surged to 12-week high on US Pres. Trump’s fresh tariff announcement

In the U.S., trade tensions made for a mixed market across commodities and the financial sectors. U.S. stocks were, however, ending the day modestly higher following a goldilocks GDP 2nd estimate and speculation of a Fed rate cut before the year is out, bouncing around the market.

Wall Street benchmark performances

• The Nasdaq Composite Index closed up by 0.3% to 7,568.  
• S&P 500 ended 0.2% higher at 2,789.
• The Dow Jones Industrial Average (DJIA), added a modest 44 points, or 0.2%, to 25,170

The mood was set from dove Fed vice-chair Clarida which sent US bond yields, already in a downward spiral, to fall even further. The US 10yr treasury yield dropped from 2.28% to 2.21%, staying well below the Fed funds rate at 2.38%. Something worth noting was the inversion to 3-year yields being the deepest inversion since 2007. The US 10-year Treasury note yield that was at 2.22%, vs the three-month T-bill that was at 2.36%, showing that investors are betting that the Fed will cut rates by the end of the year - a counter and buffer to the prospects of a slowing global economy. 2yr yields similarly fell from 2.13% to 2.05%.  The US dollar, however, was net little changed against major currencies.

As for the US data, US Q1 GDP was revised a little lower to 3.1% from the first estimate at 3.2% while pending home sales fell 1.5% in April, weaker than expected. Attention will now be on  PCE deflator out in the US session today.  More on that below.

Prior to the Tokyo open, we had the usual end of month Japanese data dump as follows.

Currency action

Analysts at Westpac summed up the price action by the end of Wall Street as follows:

• EUR/USD ranged sideways between 1.1115 and 1.1145 while GBP/USD slid to 1.2581 in early NY but pushed back to 1.2610, barely lower on the day.
• USD/JPY round-tripped from 109.60 to 109.90 and back. 
• AUD/USD briefly dipped just under 0.6900 when USD/majors squeezed higher but steadied around 0.6910, about -10 pips on the day. 
• NZD similarly pushed up to 0.6527 in London, slipped to 0.6496 then consolidated above 0.6500.
•  AUD/NZD ranged sideways between 1.0610 and 1.0630.

Key notes from Wall Street:

Wall Street slightly higher on GDP and Fed rate-cut expectations

Key events ahead:

Analysts at Westpac explained the forthcoming key events:

The US data focus is Apr personal income and spending, seen up 0.3% and 0.2% respectively. The Fed will focus on the PCE deflator, with consensus 1.6%yr on both overall and core inflation. The Fed argues that transitory factors have been weighing on inflation. Fedspeak continues with Atlanta’s Bostic and New York’s Williams. The tariff increase from 10% to 25% on $60bn of imports from China into the US goes into effect Saturday.