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The US dollar is down, EM and smaller G-10 currencies have rebounded and risk appetite is healthily ahead, despite the fact that Trump's tariffs on $34 billion worth of Chinese goods come into force today and China has announced additional retaliatory levies on the US.
"There was very little reaction to the FOMC minutes overnight, the market seems distracted by the trade wars. Trump has been out campaigning for various republican mid-term candidates so the rhetoric is not backing down but the market is in very complacent mood," says John J Hardy, Saxo's Head of Forex Strategy.
Some element of this complacency may be ascribed to the market's perception that fear of the tariffs might dissuade the Fed from hiking interest rates as much as was feared, Hardy adds. "Regardless, we have strong risk appetite, and the dollar is weakening as the correlation seems to be negative to risk for the dollar. We also have yen weakness."
The big ticket item on today's economic calendar is the monthly US employment report. "We're reaching levels coming into today's jobs report that are very interesting in a number of dollar pairs, including Aussie-dollar, euro-dollar and kiwi-dollar. This report looks important for setting up whether we're going to see the dollar spill over and extend its weakness for quite some time here or whether it's going to make a stand, Hardy concludes.
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.