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Fed’s Bostic Says Trade Tensions Have Raised Risks to U.S. Economy

James Hyerczyk
It’s a big week ahead, with retaliatory trade tariffs, a heavy economic calendar, central bank commentary and policy in focus. With Canada hitting the U.S with tariffs on Sunday, will there be any major economies backing down?

The U.S. Dollar posted a strong performance against a basket of currencies on Tuesday, breaking a four-session losing streak as investors continued to worry about escalating tensions between the United States and its trading partners in China and the European Union.

The Greenback was also supported by position-squaring and profit-taking after short-term counter-trend rallies the last few days in the Australian and Canadian Dollars. The Aussie and the Loonie are considered trade-sensitive currencies so any concerns about a global trade war tend to attract elevated levels of selling pressure.

The EUR/USD lost ground on Monday, but investors appear to be less concerned about a possible trade war, and more worried about developing turmoil in Germany where Chancellor Angela Merkel faces pressure to deal with the migration issue that has divided Europe and threatened her own government.

According to traders, the ongoing political angst in Europe contributed to today’s risk-off market sentiment.

The Chinese Yuan also weakened to a fresh six-month low as expectations grew that Beijing will let the currency weaken more in coming days to soften the impact of trade tariffs by the United States.

U.S. Economic Reports and Fed Speakers

Home prices in 20 U.S. metropolitan cities continued to rise in February, though gains are moderating in a number of urban areas, according to S&P Dow Jones Indices.

The S&P/Case-Shiller 20-City Composite Home Price Index rose 5.4 percent in February, just below expectations for a 5.5 percent increase among analysts.

The U.S. Richmond Fed manufacturing index rose another 4 points to 20 in June after jumping 19 points to 16 in May. It came in at 11 a year ago.

Consumer confidence fell well below economists’ expectations in June, fueled by a bleak outlook for U.S. economic conditions. The Confidence Board’s index dropped to 126.4 from a revised 128.8 in May. The index was expected to hit 128.1.

On Tuesday, Atlanta Federal Reserve bank president Raphael Bostic said that intensifying trade tensions over the last week have raised the risks to the U.S. economy. He further added that he may rule out a fourth rate increase for the year if the developing trade war gets worse.

“The more it progresses in this more contentious way, the more it leads me to feel the risks are on the downside for the broader economy,” Bostic said. “If this progresses the way it has been the last couple of days there is some likelihood I will be moving away from four as a real possibility.”

This article was originally posted on FX Empire