Foreign Exchange Market Corrects Monday’s Movements

On Tuesday, a part of Monday’s sharp movements was corrected by foreign exchange markets in early trade in Europe. And it is gradually taking in the effect of the trade war escalation between the U.S. and China.

As of 03:00 AM ET (0700 GMT), with the greenback dropping some of its gains against the euro and risk-proxy currencies like the Aussie, the dollar index was at 97.15. And it is still clawing back its losses against the yen.

The U.S. dollar was steady at 6.8769 against the Chinese yuan.

Then, investors escaped the U.S. equity market to seek safe havens and increased their bets on the Federal Reserve cutting interest rates for the year. On Monday, the two-year Treasury note’s yield dropped eight basis points to 2.19%. And it is now under the bottom end of the aimed Fed Funds rate of 2.25% to 2.50%.

Interest Rate

On Monday, John Williams, president of New York Fed, stated there is a possibility that the low-interest-rate environment will go on for years. And he did not provide more information about the Fed’s reaction to the recent trade developments. Aside from that, Fed Chairman Jerome Powell said during his last press conference that one of the significant risks to the economy is the trade dispute.

Moreover, the speech of Kansas City Fed President Esther George and Fed board member Mary Daly is expected to reveal more of the Fed’s reaction function.

Meanwhile, the EUR/USD is slightly higher at the foreign exchange market on Tuesday. It is currently trading at 1.1235, rising 0.11% for the day. Then, the German ZEW Economic Sentiment missed the estimated 5.1.  It fell by 2.1. Similarly, the eurozone release dropped 1.6.

On the contrary, the German Final CPI reported some good news. It rose 1.0%, which equaled the estimate.

On Wednesday, Germany and the eurozone release reports on GDP. In addition to that, the U.S. will show its retail sales and the Empire State manufacturing index.