U.S. Dollar: What Powell Giveth, Trump Taketh Away; Yuan Plunges Amid Accusation of Manipulation

A bullish tone for the U.S. Dollar was set early in the week by hawkish testimony from Fed Chair Jerome Powell. President Trump’s comments topped the dollar and led to additional selling pressure that turned the Greenback lower for the week against a basket of currencies. The People’s Bank of China set the dollar’s reference rate at 6.7671 yuan, steering the currency 0.9 percent lower and weakening it the most in two years.The Australian Dollar finished slightly lower against the U.S. Dollar last week, but was supported by better than expected Employment Change data.
James Hyerczyk

The U.S. Dollar and the Chinese Yuan were the focus for Forex traders last week. The dollar was posted a volatile two-sided trade, driven higher by economic reports and hawkish testimony by U.S. Federal Reserve Chairman Jerome Powell. The Greenback was pressured by President Trump’s nearly unprecedented criticism of the Fed monetary policy and the threat of additional tariffs on China.

The Yuan was pressured perhaps by aggressive action by the People’s Bank of China to lower the value of their currency designed to combat the impact of the U.S. tariffs on the economy.

U.S. Dollar

With the exception of housing data, last week’s U.S. reports showed a solid economy. Retail Sales came in at 0.5%, beating the 0.4% estimate. The previous report was also revised to 1.3%. Core Retail Sales came in as expected, but May’s report was revised upward to 1.4%.

The Empire State Manufacturing Index came in higher than expected at 22.6. Industrial Production and the Philadelphia Fed Manufacturing Index also beat their estimates.

Capacity Utilization came in slightly lower. Building Permits and Housing Starts missed their forecasts badly.

The Fed’s Beige Book highlighted concerns by manufacturers over the impact of the U.S. tariffs on China and the European Union.

A bullish tone for the U.S. Dollar was set early in the week by hawkish testimony from Fed Chair Jerome Powell. He told a couple of congressional committees that the economy was strong enough to handle additional rate hikes and that rate hikes would continue to gradually rise this year and next.

President Trump’s comments topped the dollar and led to additional selling pressure that turned the Greenback lower for the week against a basket of currencies. Twice last week, Trump criticized Fed monetary policy, saying on Thursday, “I am not happy about it” then following up on Friday with a tweet that said, “The United States should not be penalized because we are doing so well.”

Chinese Yuan

President Trump called out China Thursday and again on Friday for manipulating their currencies and keeping them low against the dollar. Hours after Trump’s comments were first aired on CNBC Thursday, the People’s Bank of China set the dollar’s reference rate at 6.7671 yuan, steering the currency 0.9 percent lower and weakening it the most in two years.

Trump followed his comments with a tweet Friday morning that criticized China for “manipulating” their currency.

While Trump may believe the yuan is being manipulated to stem the negative effects from the U.S. tariffs, analysts are saying that trade wars and rising U.S. interest rates are driving up the value of the dollar. Strategists are also saying that China may not be intentionally weakening its currency, but it is not talking action to stop its decline.

Australian Dollar

The Australian Dollar finished slightly lower against the U.S. Dollar last week, but was supported by better than expected Employment Change data. The employment change report showed the economy added 50.9K jobs last month, beating the 16.7K estimate. The unemployment rate remained at 5.4%.

Despite the strong labor market data the Reserve Bank of Australia is likely to keep interest rates lower for a prolonged period of time. It is waiting for the tightening labor market to drive up wages and thus inflation before it will consider a rate hike.

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