USD flows: USD recovers modestly on Trump comments, PMIs in focus

Comments from Trump overnight have allowed a stronger risk performance. Trump said he had no intention of firing Powell, and said he would be “very nice” to China. The first statement can probably be taken at face value – there seems little upside in trying to fire Powell – but the comments on China have little substance. While we do expect some sort of deal to remove the majority of tariffs in the next few months, the disruption is not going to disappear. The initial rally has faded and while equity markets are firmer, we wouldn’t see much reason for a major advance at this stage.

The main focus today will be on the PMIs, and these are likely to set the tone from here. A decline is expected, but as long as it is modest and doesn’t suggest recession, the markets should hold onto gains and we may see some more gains in the riskier currencies against the safe havens, including some small USD gains.