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Dollar slips, shares cautious as trade concerns persist

The dollar hovered around a 6-week low on Tuesday as the erratic U.S. policies of trade clouded the market's sentiment. Investors also took a defensive stance ahead of important developments in the coming week.

The White House announced on Monday that U.S. president Donald Trump and Chinese President Xi Jinping would likely speak this week. This comes after Trump had accused Beijing of breaking an agreement to reduce tariffs and trade barriers.

Markets will closely monitor the call between the leaders, as tensions in trade between the two world's largest economies continue to simmer due to tariffs.

Data released on Monday revealed that U.S. manufacturers contracted for the third consecutive month in May, and that suppliers were taking longer than ever to deliver inputs due to tariffs.

A private sector survey released on Tuesday showed that China's factory activities in May were also down for the first eight-month period. This indicates that U.S. Tariffs are beginning to affect manufacturers.

U.S. Futures fell, failing to maintain the gains made overnight on Wall Street during the cash session.

Nasdaq and S&P futures both fell by about 0.5%. The STOXX 600 fell by 0.45% in Europe while London's blue chip FTSE 100 dropped by 0.36%.

Matt Simpson, City Index's senior analyst and market strategist, said that Trump has the sentiment of the country in his palms once more.

He said that he expected to hear Trump and Xi talk about a "really great call" or something to that effect.

We'll have to wait until China confirms, as they tend to be slow on this matter. Price action may be unstable until we receive concrete confirmation. We also need to consider the June 4, deadline for "best trade deals" from U.S. Trading Partners.

The Trump Administration wants all countries to submit their best offers on trade negotiations before Wednesday. Officials are trying to speed up talks with several partners in order to meet a deadline they set themselves of five weeks.

PAYROLLS ON DECK

The dollar dropped to its lowest level in six weeks against a basket currency early on Tuesday. This was ahead of U.S. data on job openings later that day, and the U.S. nonfarm employment figures on Friday, which will provide a timely read on the state of the U.S. economic health.

The Federal Reserve could ease policy again if unemployment increases, for example, despite investors' largely giving up on any cut in this month or the next.

The Treasury market would benefit from a softer U.S. employment report. 30-year yields are still flirting with the 5% mark as investors continue to demand higher premiums to offset the growing supply of debt.

This week, the Senate will begin considering a tax and spending bill that would add $3.8 trillion (approximately) to the $36.2 trillion federal debt.

The dollar index closed the session marginally higher, at 98.89. This was a slight improvement from its earlier losses.

After the Swiss inflation rate fell to zero in May, the currency rose to 0.8181 Swiss Francs. This was the first time in more than four-years that consumer prices had fallen. The Swiss National Bank is now under pressure to reduce its interest rates by a large amount later in the month.

Kenneth Broux is the head of corporate FX and rates research at Societe Generale.

Broux explained that if countries like Switzerland, where the inflation rate is falling and the differentials between rates are increasing, this could prompt an intervention to reduce the depreciation and appreciation of the Franc.

A currency's value will usually increase if the rates in its home country are higher than elsewhere.

The euro reached a six-week high before falling to $1.1416 on the day, while sterling fell 0.2% to 1.3525.

Data released on Tuesday showed that euro zone inflation fell below the European Central Bank target in December, confirming expectations of another rate cut this coming week.

Brent crude futures rose 0.34% to 64.885 per barrel while U.S. Crude gained 0.46% at $62.81 a barrel.

Spot gold fell from its four-week high to $3,361 per ounce.

(source: Reuters)