FX markets in caution mode as high-yielding currencies slip
Currency markets remained cautious, with high-yielding currencies such as the Australian dollar on the back foot.
"The U.S. economy is doing well and the Fed is moving towards a more predictable path of interest rates than earlier which has prompted us to change our underweight positions on U.S. debt to neutral in some portfolios," said Paul Eitelman, a senior investment specialist at Russell Investments.
The United States announced late on Friday it was reviewing Turkey's duty-free access to U.S. markets – a move that could affect nearly $1.7 billion of Turkish imports.
Chinese stocks slumped nearly 2 percent as Beijing proposed tariffs on $60 billion worth of U.S. goods on Friday, while a senior Chinese diplomat cast doubt on prospects of talks with Washington to resolve the conflict.
With Friday's U.S. jobs data broadly indicative of a strong economy and July inflation data due later this week, markets are primed for a further increase in U.S. Treasury yields, which should support the dollar.
Inflation data this week should support that trend. ING strategists believe a report later this week will show that U.S. inflation has reached 3 percent, indicative of a strong economy. A Reuters poll predicts a similar increase.
That has also prompted hedge funds to only slightly trim their dollar long positions this week with overall bets still at their biggest in more than a year and a half.
"While the consensus view may be that we’ve had a bit of a slowdown but things are stabilizing, it is equally possible that these are early cracks in the ice."
China's central bank said it would set a reserve requirement ratio of 20 percent from Monday on financial institutions settling foreign exchange forward dollar sales to clients, effectively raising the cost for investors of betting against the yuan.
Elsewhere, the euro held at a five-week low of $1.1533 as German industrial orders fell more than expected in June, posting their steepest monthly drop in nearly a year and a half.
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)