EUR/USD is struggling below 1.1300, extending its losses. The US Dollar gained ground on Tuesday on two significant factors. The common currency is losing ground on one issue: Italy.
1) Trump tough on trade
The US may impose tariffs on cars as early as next week. The Administration will reportedly slap duties on all countries except Canada and Mexico. German car exporters are worried.
Moreover, trade talks with China are not going very smoothly. The Chinese ambassador to the US hinted that the Americans are tough in the negotiations and was not optimistic of achieving an understanding ahead of the summit between Trump Chinese President Xi Jinping on Saturday. Concerns support the US Dollar and the Japanese Yen.
Trump gave an interview to the Washington Post in which he lambasted Fed Chair Jerome Powell and blamed the Fed for the jitters in stocks. The President has been very sensitive to stock prices, but if he has someone else to blame, he may be willing to be even tougher on trade.
2) Fed on track to raise rates
The central bank will likely defend its independence from politicians and remain data-dependent. The first revision of US GDP later today will most probably serve as a reminder that the US economy is doing well.
More importantly, Fed Chair Fed will speak later in the day. His views have been mostly optimistic.
On Tuesday, no less than four FOMC members spoke out, and they did not stray from their well-known stances. Esther George was hawkish, James Bullard was dovish, and Raphael Bostic was cautiously optimistic. The most senior speaker was Vice Chair Richard Clarida, appointment by Trump earlier this year. He was undoubtedly on message: further rate hikes are coming.
The euro area’s third-largest economy showed signs of a compromise, but the European Commission is not budging. A fresh report suggests that disciplinary action against Italy may happen before Christmas and not in January as earlier thought. Brussels is not content with Italy’s willingness to trim the budget deficit from 2.4% to 2.2%. It wants 2% and different growth forecasts.