U.S. Dollar Posts Strong Gains Against Safe Haven Currencies as Trade Tensions Ease

The U.S. Dollar jumped against a basket of currencies on Wednesday with the Greenback posting solid gains against the safe-haven Japanese Yen and Swiss Franc, as trade war concerns eased following the announcement that the Trump administration would take a softer stance toward Chinese investment than previously reported.

The main catalyst behind the volatile move to the upside was the news that U.S. President Donald Trump said he will use a strengthened security review process to deal with threats from Chinese investments to acquire U.S. technologies instead of imposing China-specific restrictions.

In other Forex news, the trade sensitive Australian and New Zealand Dollars remained under pressure.

Additionally, the offshore Chinese Yuan fell to as low as 6.6195, its weakest since mid-December, after the People’s Bank of China lowered the currency’s midpoint to its weakest in six months for a sixth straight day. The move indicates that Beijing will allow the Yuan to decline even further to ease the impact of tariffs imposed by the United States. A softer currency tends to attract more foreign demand for Chinese goods.

The Euro fell sharply on Wednesday from trade concerns, the threat of a political crisis in Germany and uncertainty over a European Union summit. Finally, the British Pound was pressured as imminent Brexit talks and a more dovish outlook toward the Bank of England in regards to future rate hikes weighed on the currency.

U.S. Economic Data and Fed

New orders for key U.S.-made capital goods and shipments unexpectedly fell in May, but data for the prior month was revised higher, suggesting moderate growth in business spending on equipment in the second quarter.

The Commerce Department said Core Durable Goods Orders fell 0.3% versus a 0.5% estimate. The previous month was revised higher to 1.9%. Durable Goods Orders fell 0.6%, less than the expected -0.9%.

The Commerce Department also reported that the goods trade deficit declined 3.7 percent to $64.8 billion in May as an increase in exports outpaced a rise in imports. The government department also said wholesale inventories increased 0.5 percent in May and stocks at retailers gained 0.4 percent.

In other news, FOMC member and the Fed’s vice chairman for supervision did not address monetary policy on Wednesday, but he did defend a key international regulatory body known as the Financial Stability Board (FSB). The FSB was created in the wake of the 2007-2008 global financial crisis to help set international regulatory standards.

Quarles stressed the importance of the FSB in bolstering global financial stability by propagating strong regulatory standards that also help protect the U.S. system.