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By xemarketanalysis May 23, 2018 1:34 pm
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    XE Market Analysis: US Dollar and Safe-Haven Rally on Risk Aversion

    OVERVIEW

    • US Dollar strengthens across the board, Yen and Swiss Franc also strengthen.
    • EUR falls to fresh lows for the year after survey shows growth slowed further in May.
    • GBP weaker after inflation miss.
    • Turkish Lira's pain continues, hits fresh record lows.

    HIGHLIGHT

    The Turkish Lira's recent selloff accelerated today, as market sentiment turned more negative following downbeat comments from Donald Trump on trade with China and his upcoming meeting with Kim Jung-Un. The Lira plummeted through the early European session, down more than 5% at one stage to a fresh record low as investors continued to fear that President Tayyip Erdogan will seek to prevent the central bank from raising interest rates. The central bank is due to meet in two weeks but with the Lira's losses increasing to 20% this year, it may be forced to call an extraordinary meeting to attempt to shore up its currency to limit the effects of its plunge on inflation.

    US DOLLAR

    The Dollar has strengthened further, recovering all its losses yesterday as geo-political worries intensified in response to President Trump casting some doubt on the North Korean Summit and suggesting a lack of progress on trade talks with China. Tonight's Federal Reserve minutes could add to the Dollar's gains if they suggest the FOMC is looking to tighten monetary policy faster than previously indicated.

    BRITISH POUND

    The Pound is weak, falling to its lowest level since December versus the Dollar after UK inflation data for April slowed unexpectedly to 2.4%. Whilst that's still above the Bank of England's 2% target, weaker than expected CPI casts further doubt about the BoE’s need to raise interest rates. Meanwhile, the UK government continues to struggle to advance its Brexit policy. 

    EURO

    The Euro is also under pressure today after the release of the latest business activity indexes that showed a much sharper than expected slowdown in growth in May. The composite PMI fell to an 18-month low, suggesting the slowdown in Q1 has extended into the current quarter and has implications for ECB policy. 

    CANADIAN DOLLAR

    The Canadian Dollar is down 0.5% versus its US counterpart today purely because of the broad-based risk aversion, with oil prices remaining close to multi-year highs. The continued flip-flopping of Trump's tweets are also likely weighing on the Loonie given that NAFTA negotiations are still not concluded, adding uncertainty for investors.

    AUSTRALIAN DOLLAR

    The Australian Dollar has given up its gains for the week, with Trump's comments on trade talks with China unsettling investors due to Australia's critical trade ties with the world's number two economy. A souring of the outlook for talks with North Korea also plays into a less upbeat regional risk appetite. 

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