Major currencies like the U.S. dollar and the euro were muted early Tuesday, while the British pound led developed market gainers on the back of supportive wage data.
In the U.S., traders are waiting to see whether the Treasury will label China a currency manipulator in a report on the foreign exchange market due Tuesday. While President Donald Trump has been saying that China is manipulating its yuan, and Beijing in return rejecting the claims, the U.S. Treasury never actually labeled the Asian giant as such.
The ICE U.S. Dollar Index DXY, -0.08% was down 0.1% at 95.004 on Tuesday. One dollar last bought 6.9180 yuan in Beijing USDCNY, -0.0651% little changed from Monday, and 6.9066 yuan offshore USDCNH, -0.2311% down 0.2%.
Check out: The stock retreat is only the latest reason analysts believe the dollar rally is over
In the U.K., wage data from August showed wages growing at their fastest pace in almost 10 years earlier. Still “we think markets are being overly optimistic on both Brexit risk and the economic outlook, and the two are intertwined.”
The British pound GBPUSD, +0.5931% last bought $1.3218, up from $1.3151 late Monday in New York, making it the best performing among developed market currencies on Tuesday, according to FactSet.
Meanwhile, Britain’s Telegraph newspaper reported that Prime Minister Theresa May could face a no-confidence vote within days if she doesn’t drop her Chequers Brexit plan. This comes just a day after the she told parliament to keep calm and that negotiations with Brussels were in the final stages.
Elsewhere in Europe, Italy’s government approved a budget proposal for 2019 late Monday, which could see the budget deficit of the European Union’s fourth largest economy balloon to 2.4% of GDP. Italy is expected to run into some trouble with the Brussels and EU budget rules over the proposal.
See: Italian stocks flirt with best day in 3 weeks amid EU budget clash
“The EU now has a week to make its initial assessment. As noted yesterday, some polls suggest that the popularity of the Italian government has risen during this budget drama and so Salvini and Di Maio really have no reason to give in to EU criticism,” wrote Win Thin, global head of currency strategy at Brown Brothers Harriman.
The full draft budget law will be sent to the Italian parliament by Saturday. Lawmakers will need to approve it by the end of the year.
The euro EURUSD, +0.0691% was muted at the start of Tuesday’s U.S. trading day, last buying $1.1583, little changed from Monday. Besides political headlines, euro traders also digested economic data from Germany, where the ZEW indicator came in lower than expected, which was attributed to lingering Brexit uncertainties.
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