USD Weakens in Early June on Tariff Concerns
The US dollar continued to weaken in June, reflecting investor caution after a rally in late May. According to Scotiabank, the greenback is under pressure from a range of factors, including rising trade tensions and a decline in US stocks and Treasury bonds.
Former President Trump’s decision to impose 50% tariffs on steel and aluminum, along with China’s tough response, has unsettled market sentiment, said FX strategist Shaun Osborne. The dollar has failed to maintain its recent gains as the tariff moratoriums have expired, reflecting a lack of confidence in the US economic outlook.
Scotiabank warned that the risk of rising inflation and slowing growth could become a major headwind for U.S. assets, especially as markets increasingly question the independence of the Federal Reserve. At the same time, a sharp decline in goods imports in April is also a sign that the impact of global trade is starting to affect the U.S. economy.
The DXY index is hovering near the low of 99.7 (May 23), but weak technical and sentiment factors suggest a further fall to 97.9 or lower, into the 90–95 range over the next few months.
While there is a lot of important economic data this week, including Friday’s jobs report (NFP), Scotiabank believes that these figures are unlikely to have a strong impact on the USD if the Fed remains cautious and has not yet given a clear direction in the face of the trade war with many unknowns.
Aluminum and copper prices fluctuate on US tariff concerns
The US tariffs on steel and aluminum have immediately pushed up the average cost of aluminum in the Midwest, now nearly 25% above the LME benchmark. The market reaction to the new tariffs has been clear, according to TD Securities commodity strategist Daniel Ghali.
Meanwhile, the copper market remains in a state of imbalance. However, the price difference between the Comex (US) and LME (London) exchanges has only increased slightly, showing that traders are still cautious, waiting for more clear information about the possibility of imposing tariffs on this commodity.
However, buying interest in the Comex market is showing signs of increasing. If this trend continues, copper prices on the LME may be supported as algorithmic trading funds (CTAs) are likely to continue buying, with a scale of up to 20% of the total maximum volume according to the trading algorithm.
Gold prices soar as dollar weakens and US fiscal concerns grow
Gold (XAU/USD) has surged, adding about $60 in the first session of the week, thanks to a broad sell-off in the US dollar. The greenback weakened on escalating concerns about global trade and the US fiscal health, helping the precious metal attract safe-haven flows.
Last weekend, former President Trump rocked markets by announcing plans to double tariffs on steel and aluminum imports. He also hinted at the possibility of opening a new trade front with China, this time involving minerals — something that has investors on high alert.
These developments have investors worried that US economic growth may slow down, while inflation is pushed up – reviving the fear of “stagflation”. Along with that, pressure from the tax cut bill that could cause the US public debt to swell further increases the fear, causing the trend of selling assets priced in USD to increase, creating strong momentum for gold – which has had an impressive series of increases in recent months.
Japanese Yen Rises as USD Weakens, BoJ Maintains Tight Stance
The Japanese yen (JPY) rose 0.8% against the US dollar (USD), becoming one of the strongest performing G10 currencies amid broad USD weakness. The move reflects market concerns and also shows the JPY's inherent strength, according to Scotiabank's Head of FX Strategy Shaun Osborne.
Japan’s domestic economic data continues to be positive, with the latest manufacturing PMI unexpectedly rising to 49.4 points – close to the growth threshold. This helps to strengthen the possibility that the Bank of Japan (BoJ) will maintain its monetary policy tightening stance in the coming time. Investors are waiting for Governor Ueda’s speech for more clarity.
Technically, the USD/JPY pair is in a bearish trend, with a risk of breaking local support levels and possibly retreating to the long-term low zone around 140, if the current weakness continues.
US manufacturing activity continued to weaken in May
Economic activity in the US manufacturing sector continued to lose momentum in May, as the ISM Manufacturing PMI fell to 48.5, down from 48.7 in April and missing analysts’ expectations of 49.5, indicating that the manufacturing sector remains in contraction territory.
However, some component indicators showed signs of slight improvement. Specifically, the employment index rose to 46.8, indicating that the pace of job creation in the industry is improving. The new orders index also edged up slightly to 47.6 from 47.2, reflecting a slight recovery in demand. Meanwhile, the prices paid index - a measure of inflationary pressures - fell slightly to 69.4.
ISM Business Survey Committee Chair Susan Spence said manufacturing activity has continued to contract since February, although the rate of decline has slowed. She also noted that indicators of demand and output have shown signs of weakness, while inputs have begun to decline, suggesting that manufacturing is still not on solid footing amid continued economic uncertainty.
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