Complacency rules, despite Trump's tariff debut

Clare MacCarthy

Senior Editor, Saxo Bank
Clare MacCarthy first joined Saxo Bank in 2012 to work as a senior editor on TradingFloor.com. Prior to this, she worked as a Denmark-based foreign correspondent for The Economist and the Financial Times and also served as Copenhagen bureau chief for Dow Jones Newswires.

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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.

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