The U.S. dollar booked a second day of losses on Thursday, as its main rival — the euro — was helped by better-than-expected inflation numbers that balanced out trade-war worries and Italian political concerns.
What are currencies doing?
The ICE U.S. Dollar Index
DXY, -0.04%
was off 0.1% at 94.063, after skidding 0.8% on Wednesday. The WSJ Dollar Index
BUXX, -0.12%
which measures the greenback against a wider basket of rival currencies, dropped 0.1% to 87.00.
The euro
EURUSD, +0.1114%
was little changed at $1.1662 versus $1.1666 late Wednesday in New York. The shared currency rallied to a high of $1.1725 on Thursday, after having dropped to an intraday low of $1.1510, its lowest level since last July.
The U.K. pound
GBPUSD, +0.3764%
rose slightly to $1.3304 from $1.3282 late Wednesday, when it rebounded from a 10-month low.
The Japanese yen
USDJPY, -0.37%
moved higher against the dollar, with the greenback fetching ¥108.45, down from ¥108.91 on Wednesday.
Versus its trade partners in the North American Free Trade Agreement, the dollar strengthened as trade war fears were back in focus. Against Canada’s dollar
USDCAD, +0.5903%
the buck rose to C$1.2962, up from C$1.2876 late Wednesday, while buying 19.9730 Mexican pesos
USDMXN, +1.1386%
up from 19.7266 late Wednesday.
What is driving the market?
While worries about Italy remained in the back of investors’ minds on Thursday, trade war fears came back into focus as the U.S. imposed tariffs on steel and aluminum imports from Canada, Mexico and the European Union starting Friday.
The EU is likely to respond with retaliatory actions, given previous comments. Meanwhile, Canada and Mexico still remain in talks with the U.S. concerning Nafta. Market participants had expected a deal-in-principle to be reach in May, but given the start of June on Friday, chances have become slim. The renegotiations were meant to be concluded before Mexico’s July 1 presidential election and the kickoff of midterm election campaigning in the U.S.
Meanwhile in Italy, where President Sergio Mattarella is trying to avert having to hold a new general election, media reports Thursday say he may give antiestablishment parties The 5 Star Movement and League another chance to form a coalition government. Mattarella essentially blocked their first attempt earlier in the week and attempting to bring in an International Monetary Fund veteran as prime minister.
On Wednesday, reports said 5 Star is pushing for League-backed Paolo Savona to drop his bid to become economy minister in a coalition government of the two parties. His candidacy was the reason Mattarella rejected the parties’ first attempt at taking power.
Meanwhile, major Italian political parties have called for repeat elections in July. But investors worry the ballot could turn into a de facto referendum on Italy’s euro membership, and a pro-euroskeptic outcome could eventually shake the foundations of the entire currency union.
Read: Bill Gross’s bond fund gets whacked amid Italy’s political turmoil
But in positive European news, eurozone inflation number rose more than expected in May, aided by rising energy and food prices and providing some confidence that the European Central Bank could indeed be on the path of interest rate normalization. Harmonized consumer prices across the currency bloc moved up 2.3% on the year, topping the European Central Bank’s target for the first time since 2012, according to figures from Insee released Thursday.
Read: Higher oil prices could give ECB grounds to turn hawkish, says HSBC economist
What are strategists saying?
“Political developments are the driving force behind the market relief. President Mattarella and his designated [prime minister], Carlo Cottarelli, are trying to find some agreement on a new government that would enable the country to avoid another general election,” said Marshall Gittler, chief strategist at ACLS Global.
“5 Star Movement’s leader, Luigi Di Maio, appears willing to nominate a finance minister who won’t try to take Italy out of the euro, which is a big relief too. Of course, all political developments are subject to change without notice,” Gittler said in a note
See: Here’s why Italy’s political turmoil is an inflection point for the euro
What else is in focus?
U.S. core inflation inched up to 0.2% in April, compared with the consensus estimate of 0.1%.
Jobless claims for the week ended May 26 came in at 221,000, slightly below estimates of 225,000.
Personal income rose 0.3% in April, in line with forecasts, while consumer spending climbed 0.6% versus 0.4% expected.
Chicago PMI numbers for May read 62.7, beating the previous reading of 57.6.
Pending home sales for April concluded the data dump, showing a 1.3% drop.
See: MarketWatch’s economic calendar
In other assets, U.S. stocks were mixed, with only the Nasdaq Composite Index
COMP, +0.00%
in the green.
U.S. Treasury yields inched lower on Thursday. The 10-year note
TMUBMUSD10Y, -0.98%
last yielded 2.830%.
Source : MTV
