A risk-averse environment is taking over Tuesday on the heels of Trump’s latest tariff threat Monday night. Safe-haven currencies are gaining the most this morning as global uncertainty increases not only from trade, but from Brexit and Eurozone politics as well. On the data side, U.S. housing starts for May exceeded expectations.
Trump’s tariffs on $200 billion
President Trump said Monday night that he has ordered the U.S. Trade Representatives to identify $200 billion in Chinese goods to assign a 10% tariff. The announcement comes after the Chinese retaliated to the U.S. tariffs announced on Friday.
The White House said it would impose a 25% tariff on $34 billion worth of goods by July 6 with $16 billion in imports under review. China struck back immediately with a 25% tariff on $34 billion of U.S. agricultural goods and autos starting on July 6.
When announcing this new set of tariffs on $200 billion in Chinese goods, Trump said the administration would set tariffs on another $200 billion in goods if the Chinese retaliated again.
The threats have created a risk-off mood in the markets, particularly within the global stock markets. Safe-haven Japanese yen is rising off the mood, up about 0.85% against the U.S. dollar. USD/JPY is sitting around 109.9 after staying above 110 since Thursday.
The dollar is, however, gaining on the euro and the pound this morning. GBP/USD hit a seven-month low of 1.315 Tuesday morning. EUR/USD reached as low as 1.153.
May faces hurdles with Brexit votes
Prime Minister Theresa May lost a key measure in the House of Lords yesterday when they voted to add an amendment to the withdrawal bill that gives them more influence over the final deal between the U.K. and E.U.
The amendment is now up for a vote in the House of Commons today. This would ultimately give parliament more control than the ministers as to what Brexit looks like.
With nine months to go until the U.K.’s exit, the pressure to come to an agreement is weighing on the pound.
GBP/USD is trading up a bit around 1.317 after hitting a seven-month low of 1.315 earlier.
Euro gets taken down by ECB again
During the European Central Bank’s conference in Sintra, Portugal, the dovish tone by ECB members took the euro lower.
President Mario Draghi said the ECB would remain patient in determining the first rate hike and ECB member Jan Smets said it is too early to say that a rate hike will for sure happen in summer 2019.
The comments didn’t help the common currency, which has had a rough couple days after a political squabble in Germany Monday and the underlying global trade tensions.
U.S. housing starts surprise
The housing starts in the United States for May surpassed expectations, while building permits declined even more than expected.
May housing starts grew 1.350 million compared to 1.310 expected. Building permits declined 4.6%, coming out at 1.301 million for May compared to 1.364 million in April.