Trump’s Threat to Shutdown Government Rattles U.S. Dollar
The U.S. dollar weakened on Wednesday as investors reduced exposure in higher-yielding assets after U.S. President Trump’s threat of a government shutdown and comments about the possible termination of a North American trade agreement.
In a speech In Phoenix, Arizona, late Tuesday, Trump warned he might terminate the NAFTA trade treaty with Mexico and Canada after a three-day conference failed to settle deep differences. He also stated that he may shut down the government if he does not get funding for a wall on the U.S. –Mexico border.
Trading conditions were thin as investors awaited speeches from Fed Chair Janet Yellen and European Central Bank President Mario Draghi on Friday in Jackson Hole, Wyoming. Therefore, the market may have over-reacted to Trump’s comments. No one can be certain whether Trump was trying to publicly negotiate changes to the current treaty, or if he was actually serious about ending NAFTA completely.
Forex
Investors didn’t waste time trying to determine whether Trump’s comments were a negotiation ploy or a real threat. They moved money into the Japanese Yen for protection. This move weighed on the U.S. Dollar.
The EUR/USD also rose after the release of strong German and French PMI survey readings.
Essentially, the dollar remained under pressure because the buying was too thin to mount an intraday counter-trend move.
U.S. Economic News
Disappointing U.S. economic data also pressured the U.S. Dollar. Flash Manufacturing PMI came in below expectations at 52.5. Analysts were looking for a reading of 53.4. Flash Services PMI data, however, exceeded expectations. New Home Sales were ugly, coming in at 571K, well below the 611K forecast.
In other news, Dallas Federal Reserve President Robert Kaplan said on Wednesday that high levels of debt in the United States represent an impediment to future growth.
During a Q&A session at the Permian Basis Petroleum Association Membership luncheon in Midland, Texas, the FOMC member also said he wants to be patient and wait for more data before raising argument for removing some monetary accommodation from the economy.
Crude Oil
Crude oil prices rose over 1 percent on Wednesday after a favorable U.S. government weekly inventories report. The actual crude oil number came in as expected, but a drawdown in gasoline stocks set a bullish tone in the market.
According to the U.S. Energy Information Administration (EIA), oil inventories fell by 3.3 million barrels to 463.2 million barrels during the week-ending August 18. Gasoline stocks fell by 1.2 million barrels, compared with expectations in a Reuters poll for a 643,000-barrel drop.
Gold
Gold prices rose on Wednesday, supported by lower U.S. Treasury yields and a weaker U.S. Dollar. The catalysts behind the buying were Trump’s comments after shutting down the government and ending NAFTA, and the disappointing Flash Manufacturing PMI and New Home Sales reports.
This article was originally posted on FX Empire
