The Dollar trade-weighted index is broadly unchanged for the second consecutive session, on the back of a mixed performance.
While the Dollar has rallied against the Euro and Sterling, it has weakened against the more risk-sensitive Kiwi Dollar and high-yielding emerging market currencies which are seemingly benefiting from a bounce in global risk appetite. The S&P 500 is currently up 1% following comments by US President Trump that he would meet his Chinese counterpart at next week’s G-20 Summit, with markets seemingly hopeful that the US and China can reach some kind of agreement on trade or at least delay the imposition of any further import tariffs.
The Euro is down 0.4% in trade-weighted terms to its weakest level in five weeks, with the EUR/USD cross trading below 1.12 for the first time in a fortnight, weighed down by a fall in Eurozone government bond yields. The main catalyst was a dovish speech this morning by ECB President Draghi at its annual symposium, with weak German macro data adding to Euro bearishness.
Draghi argued that indicators pointed to signs of “lingering softness” in the Eurozone economy in the coming quarters and that if the outlook for inflation failed to improve then additional stimulus must be needed. Specifically, he said the ECB had “considerable headroom” to launch a new round of quantitative easing and could lower interest rates, with the short-term aim of targeting inflation above its medium-term goal of just under 2%.
The monthly German ZEW economic sentiment index tanked nearly 20 points in June to -21.1, its weakest level since November. The average for Q2 of -6.7 is up only marginally from -10.7 in Q1, suggesting that German GDP growth may have treaded water in Q2 after bouncing back to 0.4% qoq in Q1.
