Daily Brief

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Taxes on imports

Fed ready to act

In an interesting turn up for the books the safe-haven Japanese yen was knocked into last place even as the US president insisted that taxes on imports from Mexico will go ahead. It looked as though investors were giving more credence to the Mexican government than to Trump.

Mexican president Andres Manuel Lopez Obrador said yesterday that he expects to find a way to fend off America's punitive tariff. His foreign minister Marcelo Ebrard saw an 80% chance of avoiding the duties.

Another boost to confidence came from Federal Reserve chairman Jerome Powell. During a speech in Chicago he spoke of "recent developments involving trade negotiations and other matters" and said "we will act as appropriate to sustain the expansion". He stopped short of promising a rate cut - or even mentioning one - but that did not worry investors:  they are yet more convinced that two will come this year. The US dollar avoided a third day at the back of the field only because the yen had a worse day.

Sterling goes up

The pound's previous average daily gain against the other major currencies has faded into folklore but that is what it managed in Tuesday, adding 0.3%.  It picked up two fifths of a US cent and a quarter of a cent each from the euro and Swiss franc. The improvement was at least partly the result of  bullish trade talk from the visiting US president.

He promised Britain a "phenomenal" trade deal with "tremendous potential" once it has left the EU. Although there was some confusion about whether such a deal would allow access to the NHS for US healthcare companies, investors were content to interpret the president's apparent enthusiasm as positive for the pound.  

The construction sector purchasing managers' index was most certainly not positive. Coming after a four-point miss for Monday's manufacturing PMI, yesterday's construction reading was two points short of forecast at 48.6. Elsewhere, Tuesday's biggest statistical disappointment was South African gross domestic product. It shrank by 3.2% in the first quarter, knocking the rand 1.6% lower.

Rate cuts by RBA

The Australian dollar is fractionally firmer on the day against sterling despite yesterday's rate cut by the Reserve Bank of Australia, dovish comments from the governor and disappointing first quarter GDP data this morning. Its survival could have something to do with optimism about the US tariff stance.

When RBA governor Philip Lowe addressed his dinner guests yesterday he told them "it is not unreasonable to expect a lower cash rate" in the foreseeable future. The bank's outlook sees it around 1% by the end of the year. This morning's GDP data supported that idea, with quarterly growth in Q1 coming in below forecast at 0.4%.

Australia's balance of trade figures come out tonight. Ahead of those will be the round of services sector PMIs as well as euro zone retail sales. As with manufacturing on Monday, most of the PMIs are expected to be flat or lower on the month.

GBP: Phenomenal trade deal promised by Trump

GBP: Phenomenal trade deal promised by Trump

ZAR: Clobbered by GDP slump

ZAR: Clobbered by GDP slump

JPY: Indicates improved optimism

JPY: Indicates improved optimism

USD: Fed chair hints at rate cut

USD: Fed chair hints at rate cut

AUD: Slightly ahead despite dovish RBA

AUD: Slightly ahead despite dovish RBA

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