The ongoing trade war between the US and China entered a new chapter overnight, as the Chinese yuan lost more than 1% overnight to an 11-year low, as fears grow that tensions are beginning to escalate. The yuan unexpectedly broke through the closely watched 7 per dollar mark for the first time since the global financial crisis, a level widely regarded as a major support level.
This comes only days after US President Donald Trump vowed to add a further 10% of tariffs on $300 billion’s worth of Chinese imports on 1 September, after reports from US negotiators claim China failed to agree to buy large quantities of US agricultural products as promised.
It is clear that the impact of the ongoing trade negotiations is affecting the global market as a whole, as this news affected many other currencies including the Australian dollar down 0.35%, the Korean won down 1% and the Mexican peso also down 1%.
There were some benefactors however, as gold hit a six year high of $1456.20 p/ounce and the Swiss franc climbed to a two year high against the euro at 1.0890, as investors move to safe haven assets once more.
In the US, non-farm payroll data increased in line with market expectations at 164K on Friday, with unemployment holding steady at 3.7% and average hourly wages seeing modest growth of 0.3%. The release is normally scrutinised by traders, however this month it was somewhat overshadowed by central bank rhetoric and global trade tensions.
Fed fund futures have now increased bets on further policy easing by the Fed at their September meeting. The dollar has given up some of its recent gains, sitting at 1.1120 against the euro.
In the UK, construction PMI data released on Friday ticked up to 45.3 against the previous months 43.1. However, despite this advance, the component still sits beneath the key level of 50, highlighting contraction within the sector.
Brexit uncertainty is weighing heavy on to the economy, with construction and manufacturing sectors struggling to win contracts as confidence begins to wane.
The Bank of England (BoE) offered no surprises by keeping rates on hold last week. However, comments from governor Mark Carney, suggested that the economy would face a sudden dip in the event of a no-deal Brexit. For now, domestic politics will continue to shape the market, as Westminster and the Tory party disagree over the withdrawal agreement.
European services data are release this morning between 8:15am and 8:55am, followed by UK services PMI at 9:30am. US services PMI is at 2:25pm, with ISM non-manufacturing data at 3pm.
BoE keeps rates on hold
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