Heightened fears of a global recession after Trump threatens Mexico with tariffs

With factory activity contracting in most of Asia last month, driven by the US – China trade war, central banks are being forced to review monetary policy, with the Federal Reserve potentially being forced to cut interest rates more than once this year. To compound recessionary fears, President Trump not only threatened to levy new tariffs of 5% on all Mexican imports last week, which could rise to 25% in October, unless the Mexican government takes action to halt illegal immigration into the US, he also removed India from a special trade programme.

STERLING

GBP/USD touched a daily low of 1.2560 last week, as investors continue to contemplate the threat of a no-deal Brexit. Last week saw the pound post its largest monthly loss versus the Euro in two years. Data releases are somewhat sparse this week although Bank of England Governor Carney speaks on Thursday.

US DOLLAR

The Dollar Index is little changed in Europe this morning ahead of a busy week of data that culminates in Friday’s jobs report. Trade tensions between the US and China appear to have escalated over the weekend with S&P futures pointing to a lower open on Wall Street. However, the Dollar has been relatively resilient having surrendered the 98.0 handle on Friday after Trump’s Mexican tariff announcement.

Looking ahead, Friday’s jobs report will be a key focus for investors this week while we also await ISM manufacturing and Markit PMI later today plus trade data on Thursday.

EURO

Friday’s weaker-than-expected German inflation data was largely ignored by the Euro although tomorrow’s Euro Zone print may provide a sterner test for the single currency. Attention will then turn to the European Central Bank who meet on Thursday and may provide further details on the terms of the new TLTRO’s (targeted longer-term refinancing operations).

EUR/USD is little changed this morning with the pair having been contained between 1.11-1.12 for most of last week.

JAPANESE YEN

USD/JPY is flat this morning at just above the 108 level having plunged on Friday in response to Trump’s Mexico tariff announcement. Broader risk sentiment remains the key driver in the Yen although domestic impulses may come back into focus this week with wage data due on Friday alongside possible comments from Bank of Japan Governor Kuroda.

SWISS FRANC

The Swiss Franc rose on Friday, boosted by safe-haven demand after Trump’s tariff announcement which helped pull EUR/CHF below 1.12. The pair has continued lower this morning to a daily low of 1.1145 which is the lowest level since March 29th.

May CPI figures were released not long ago and met expectations (48.6) while unemployment figures follow on Friday.

AUSTRALIAN DOLLAR

The Reserve Bank of Australia meet tomorrow and are widely expected to cut the cash rate to 1.25% although more focus will be on any guidance regarding potential futures policy moves. The Australian Dollar has found some support in recent trading sessions with AUD/USD extending to a fresh three-week high of 0.6960 this morning.

The only notable data releases this week are GDP on Wednesday and trade data on Thursday.

CANADIAN DOLLAR

The Bank of Canada stood firm on policy last week and argued the slowdown in the economy was likely temporary. The Dollar weakened thereafter with USD/CAD topping out at a six-month high on Friday at 1.3565 as falling oil prices also played their part.

Looking ahead, Friday’s jobs report will be the main data focus for investors this week.

SWEDISH KRONA

Swedish GDP data surprised to the upside on Wednesday and boosted the Krona with EUR/SEK extending the drop through the week to a one-month low on Friday at 10.5932. Manufacturing PMI and retail sales have also both surprised to the upside this morning which pulled EUR/SEK back to flat for the day.

NORWEGIAN KRONE

The Norwegian Krone softened into the weekend as oil prices came under pressure with EUR/NOK briefly trading above the 9.8 level on Friday. Weaker than expected jobs data may also have played its part while investors now look ahead to current account data on Wednesday and manufacturing production on Friday.