FX Update: Both the dollar and yen traded softer
FX Update: Both the dollar and yen traded softer versus most other currencies, particularly against the Swiss franc. Equity markets have turned somewhat flat after the MSCI all-country world index edged out a fresh record following the signing of the phase-1 trade deal between the U.S. and China. While concerns remain about the deal itself, and future trading relations, there is conjecture that President Trump will go relatively easy on China for now (at least in actions if not rhetoric) as he turns his focus on the November presidential election. Against this backdrop the dollar, which has lost buoyancy over the last week following the misses in U.S. jobs and CPI data reports, printed three-day lows against the pound and Canadian dollar today and a 16-month low versus the Swiss franc while remaining heavy versus the euro, with EUR-USD underpinned, though just off the eight-day high seen yesterday at 1.1163. USD-JPY, in contrast, printed a two-day high at 110.06 on the back of yen underperformance, returning focus on the eight-month high seen earlier in the week at 110.21. Cable, meanwhile, edged out a three-day peak, at 1.3065, and USD-CAD printed a three-day low at 1.3032. EUR-CHF extended recent losses to a fresh 33-month low at 1.0732. This is the sixth week out of the last seven that the cross has declined, with losses accelerating this week. The reason for the divergence in the two main currency safe-haven currencies, the yen and the franc, is the U.S. Treasury having added Switzerland to its list of currency manipulators. This seems a bit rich given the franc is a demonstrably chronically overvalued currency in purchasing parity terms (as illustrated by the Economist's Big Mac index). The U.S. argues that Switzerland needs a more expansive fiscal policy. The CHF-JPY cross is now trading at 13-month highs after rallying by almost 5% from levels seen in late November.