Dollar weakens on Trump’s criticism of China’s weak yuan policy - 18.1.2017

US stock indexes slide as dollar slumps

US financial markets closed lower on Tuesday after president-elect Trump criticized China for keeping its currency weak making the dollar “too strong”. The dollar slumped after Trump’s comments: the live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, closed 1.3% lower at 100.313. The Dow Jones industrial average slid 0.3% to 19826.77 weighed by more than 3% drop in JP Morgan and Goldman Sachs shares. The S&P 500 closed 0.3% lower settling at 2267.89 with financial and industrial stocks the weakest performers. The Nasdaq index lost 0.6% to 5538.73.

Trump blamed China’s weak yuan policy for large US trade deficits in a Friday interview saying US companies can’t compete with Chinese producers now because US dollar is too strong. The comment hurt the dollar. At his first press conference last Wednesday president-elect provided no details on his policies expected to boost US economy via tax cuts and new spending programs. His remark about negative consequences of dollar’s strength brings the monetary policy back into focus again as investors await more clarity on how Trump’s administration will act on his proclaimed policy preferences. In economic news, the Empire State index for January slipped to 6.5 from an 8-month high 7.6 in December. Readings above zero indicate improving conditions. Today at 13:00 CET Mortgage Applications will be released by the Mortgage Bankers’ Associations in US. At 14:30 CET December Inflation will published, the outlook is positive for dollar. At 15:15 CET December Industrial Production will be released, the outlook is positive. At 20:00 CET the Federal Reserve will release the Beige Book. And at 21:00CET Fed Chair Janet Yellen will speak at the Commonwealth Club, in San Francisco.

May’s statement alleviates hard Brexit fears

European stocks pared losses on Tuesday helped by UK’s Prime Minister Theresa May’s statement British lawmakers will be able to vote on Brexit’s terms. Both the euro and the British Pound rebounded against the dollar with the Pound jumping more than 3%, largest one-day gain since October 2008. The Stoxx Europe 600 declined less than a point. Germany’s DAX 30 slipped 0.1% to 11540.00. France’s CAC 40 lost 0.46% and UK’s FTSE 100 index dropped 1.46% closing at 7220.38.

While May said Britain “does not seek membership of the single market but the greatest possible access to it,” she confirmed both houses of Britain’s parliament will be able to vote on the final terms of a Brexit agreement worked out by UK and EU officials. May also said she wanted to trade with EU member states as freely as possible. May’s comments supported the Pound and European stocks on expectations UK’s exit terms from EU won’t be as hard as feared. Higher UK inflation data also helped the Pound showing consumer prices rose at the fastest annual rate in more than two years - 1.6% in December from 1.2% a month earlier. In other economic data the ZEW indicator of German economic expectations rose to 16.6 in January from 13.8 in December. Today at 10:30 CET November labor market report will be published in UK, the outlook is positive for Pound. And at 11:00 CET November Construction Output and December final inflation will be released in euro-zone, the outlook is positive for euro.

Asian markets higher ahead of Yellen’s speech

Asian stocks are mostly up today amid cautious mood before Trump's inauguration on Friday. Nikkei ended 0.4% higher today at 19894.37 rebounding from five-week lows as the yen weakened against the dollar with investors awaiting Fed chair Yellen’s speech later today. Chinese stocks are advancing with stronger yuan after Trump’s criticism of Beijing’s devaluation policies increasing attractiveness of Chinese equities. The Shanghai Composite Index is 0.1% higher and Hong Kong’s Hang Seng index is up 1.2%. Australia’s All Ordinaries Index fell 0.4% with Australian dollar pulling back from one-month high against the dollar.

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Oil prices rise on weaker dollar

Oil futures prices are edging higher today as weaker dollar makes it less costly for users of other currencies, boosting the demand for the commodity. At the same time concerns US crude output may rise as prices go up limit the gains in oil. US government report said on Tuesday US oil production is set to rise towards 9 million barrels per day, forecasting a monthly rise of 41000 barrels a day in February oil production to 4.748 million barrels a day from seven major US shale plays. The March contract for Brent crude oil fell 0.7% to $55.47 a barrel on Tuesday.