Currency traders are not getting too carried away by Trump’s comments, given we saw plenty of similar rhetoric prior to his decision to raise tariffs on $200bn worth of Chinese goods last week. Financial markets in general were firmly in a risk-off mode on Monday after China responded to the tariff hike by slapping similar taxes on $60bn worth of US imports, set to take effect on 1st June. This helped send the safe-haven Japanese Yen to its strongest position since February.

While a worrying sign, the still relatively calm nature of the moves in the FX market, which have not yet transitioned into full on panic selling, suggests that the market is optimistic a deal can be struck before the aforementioned tariffs actually come into effect.

UK earnings growth eases back in March

The EUR/USD rate continued to remain supported above the 1.12 level this morning. The Euro has emerged as one of the currencies to actually benefit from the trade uncertainty, joining the traditional safe-havens. This is an indication of firstly the already very stretched positioning against the common currency and traders fear that an escalation of the trade conflict could ramp up pressure on the Federal Reserve to cut interest rates this year.

Meanwhile, Sterling sank back to its lowest level since late-April this morning, weighed down by yesterday’s flight from risk and a disappointing UK labour report released this morning. While there was a surprise decline in the rate of UK unemployment to a fresh four decade low 3.8%, average earnings growth fell more-than-expected. Earnings growth including bonuses slipped back to 3.2% in March from 3.5%. While still a very healthy level, its suggests that upward pressure on wages could be set to ease in the coming months.

The next big announcements for the currency markets will come in the form of tomorrow’s Eurozone GDP numbers and US retail sales data. The former is expected to remain unrevised from the preliminary estimate, while the latter is generally a pretty big market mover, given its significance on Federal Reserve monetary policy.