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Dollar lower, haven currencies in favor as global stocks struggle

Rachel Koning Beals

Ruble’s drop deepens in wake of Russian sanctions

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The lingering trade-war back-and-forth, ripples of geopolitical instability and a White House under scrutiny injected cautious trading into global markets Wednesday, driving the dollar to near two-week lows in favor of so-called haven currencies.

U.S. stock futures pointed lower, and many of Europe and Asia’s stock markets were back in the red after two days of gains, driving gold higher. The moves came as investors weighed the possibility of a U.S. military strike in Syria and watched for developments in Special Counsel Robert Mueller’s investigation related to Russian involvement in the 2016 presidential election.

On the data front, U.S. consumer inflation data is due for release, with Federal Reserve meeting minutes coming later.

What are currencies doing?

The ICE U.S. Dollar Index(IFUS:DX-Y.NYB) has been down every day this week so far, last off 0.1% to 89.51. The broader WSJ U.S. Dollar Index (CALCULATED:BUXX), which unlike the ICE gauge also includes emerging-markets rivals, slipped less than 0.1% to 83.72.

Read:How trade-war news has given the dollar a fresh reason to disappoint dollar bulls

The euro (EURUSD) firmed to $1.2375, up from $1.2356 late Tuesday. The British pound (GBPUSD) also strengthened, rising to $1.4191 from $1.4177.

Against the Japanese yen (USDJPY)(JPY), the dollar eased, fetching ¥106.96 compared with¥107.20 late Tuesday in New York.

The greenback bought C$1.2613 against its Canadian rival (USDCAD)(CAD), up from C$1.2600 Tuesday. That marked a limited climb from what had been its lowest level since mid-February.

Russia’s ruble(USDRUB)(RUB)  deepened its recent losses, hitting its lowest levels since 2016. The currency fell on increasing fears about geopolitical tensions with the West, as new U.S. sanctions against Moscow offset any benefit from higher oil prices.

Overnight, the dollar/ruble at one point hit 64.73, the ruble’s weakest level since Dec. 1, 2016. It has shed roughly 11% since sanctions were imposed.

What is moving the market?

In a fresh geopolitical concern for investors, the possibility of a U.S. strike against Syrian President Bashar al-Assad appeared to be growing, with President Donald Trump and his administration working to rally international support. A European air-traffic-control agency issued a warning late Tuesday for airlines to proceed cautiously in the eastern Mediterranean area over the next 72 hours, due to the possibility of airstrikes in Syria.

Traders also will be watching for any fresh turnover in the Trump administration, following reports that the president is considering firing Deputy Attorney General Rod Rosenstein. The deputy AG reportedly personally approved this week’s FBI raid on the office of Trump’s personal lawyer, Michael Cohen.

In a related development, White House Press Secretary Sarah Sanders on Tuesday said Trump believes he has the power to fire Special Counsel Robert Mueller, a step numerous lawmakers have warned him against taking.

As for trade, Chinese President Xi Jinping and Trump had both struck conciliatory tones on trade on Tuesday, driving stock markets higher on hopes trade negotiations will remain open. Other reports have said early talks remain vulnerable.

Still, China’s central bank set out arguably the clearest timetable yet for opening the financial services sector to foreign investors as Xi pledged. It will allow offshore firms to enter its trust, financial leasing, auto finance and consumer finance sectors by the end of 2018.

The euro gained for a fourth session and stayed close to a two-week high. On Tuesday, European Central Bank policymaker Ewald Nowotny told Reuters the ECB could get rate hikes rolling once its €2.55 trillion bond-buying program ends this year. The euro is up roughly 3% so far in 2018, mostly on expectations that the ECB will sooner rather than later normalize monetary policy and raise interest rates.

Meanwhile, manufacturing output in the U.K. fell on the month in February, for the first such drop in almost a year. The decline added to signs the British economy had a slow start to 2018. The Bank of England is nevertheless expected to raise its benchmark interest rates to 0.75% when officials meet next month.

What are strategists saying?

• “The [euro] gave back some of its Nowotny-related gains after an ECB spokesman said that Nowotny’s views are his own and they don’t represent the view of the Governing Council. In any case, Nowotny’s comments add to speculation that the ECB may end its QE program this year,” said Charalambos Pissouros, senior market analyst with JFD Brokers.

• “The big event today will be the U.S. consumer price index (CPI) — probably the second biggest U.S. indicator of the month, after the nonfarm payrolls. The CPI is expected to show overall inflation rising further over the 2% target, while the core CPI is forecast to move back over the 2% target again,” said Marshall Gittler, chief strategist at ACLS Global.

“That’s a huge milestone. According to this definition, the Fed has hit both its targets — full employment and stable inflation. I would expect speculation to heat up about four rate hikes or otherwise a faster pace of rate hikes and for the dollar to gain as a result,” Gittler said.

What else is in focus?

The consumer-price index for March is due for release at 8:30 a.m. Eastern Time, along with core prices. Economists polled by MarketWatch are forecasting headline prices to fall 0.1% and core prices to rise 0.2%.

The Federal budget is due at 2 p.m., with the minutes of the most recent Fed meeting due for release at the same time.

Check out:5 things to watch from minutes of the Fed’s March meeting

And read:The economy is fine now, but watch out for 2020, top economist says



Rachel Koning Beals is a MarketWatch news editor in Chicago.



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