Daily Market Update

U.S. Dollar falls as global trade catches a break

May 23, 2022

The U.S. Dollar is trading in weaker ranges to start the week after markets seem to welcome the news from President Joe Biden that tariffs imposed on Chinese trade under the previous Trump administration are under review. 

Overview

If indeed some of the tariffs are reduced or taken away entirely, this could represent a major relief for a year that has been characterized by barriers to trade.Any de-escalation of the war, whether a physical conflict or a trade one, can surely help markets recover from what has become almost a bear-market equity environment.  Meanwhile, International Monetary Fund Chief Kristalina Georgieva explained in a speech that the world economy has certainly been held back by war and the pandemic woes, but that she sees the globe avoiding major recession as it continues to recover.

Certainly, it is an optimistic way to start Monday after routs across markets that have pushed the dollar higher primarily because of its safe-haven status and the Fed’s determination to hike interest rates throughout the year. We will continue to deal with high volatility as not all is well with China still concerned about COVID flare-ups in major cities, however, recognizing its economy is struggling, it has launched measures to alleviate and ease business. Expect the buck to continue floundering if the headlines keep suggesting better times ahead for the globe, but it must be taken with some measure as these are sensible times.

 

What to Watch Today…

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EUR

The Euro is trading at its strongest level in a month after a major rollercoaster dive in the past few weeks that witnessed it fall to its weakest in 5 years and then gradually recover. Christine Lagarde, the European Central Bank President, made statements over the weekend indicating their willingness to hike interest rates starting in July. We will get data to chew this week in the form of Purchasing Managers Index tomorrow and the ECB will publish a Financial Stability Review that could impact flows. Gross Domestic Product for Germany will be out on Thursday, a good gauge of the health of the Euro-zone economy.

 

GBP

Sterling has also benefitted today from the risk-on sentiment brewed by President Biden’s comments during his trip to Asia. In addition to mentioning China’s tariffs potentially being waived, he spoke of the need for a closer alliance with Southeast Asia that would also counter the dominance China exercises in those markets. The global re-opening is also needed for the U.K. as it approached nations independently to try working out workable trade deals post-Brexit. Japan is already one, but with the U.S. looking to expand in Asia it allows for British interest to also be considered.

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