The King dollar made a remarkable return on Friday after the US and China have signalled their intention to sit at the negotiation table. The New Zealand dollar performed the worst among the G10 complex as it fell 0.60% to $0.6740. The drop of June Manufacturing PMI – down to 52.8 from 54.4 in May - could also explain the depreciation of the Kiwi.
Safe haven currencies resisted quite well to the sudden improvement in risk sentiment. The Swissie edged down only 0.10%, with USD/CHF testing the previous high of May 15th at 1.0042, while the Japanese yen gave up 0.20% as USD/JPY rose to 112.78.
The publication of June inflation report in the US only provided a limited boost on the greenback, as investors remain nervous about potential negative effects of a trade war on inflation. Indeed, the implementation of tariffs would be a double whammy as it could add upside pressure on inflation in the medium to long-term, while at the same time it will have a negative effect on growth, which would ultimately force the Fed hike rate less aggressively – if not put the tightening on pause for some time.
By Arnaud Masset