Dollar recovers as North Korea tensions ease

US stocks closed lower last week while the ICE US dollar index gained some ground as North Korea tensions eased. 1 The SP 500 ended the week 0.7% lower and the US dollar index of the London ICE Exchange inched higher 0.3% for the week as North Korean leader Kim Jong Un backed down from plans to fire a missile aimed at waters near Guam, a US territory. The easing of geopolitical tensions supported the dollar as the demand for haven assets like government bonds, gold and yen fell.

Treasury yields rose and USDIDX gained 0.4% on Monday after remark by New York Fed President William Dudley, one of the most influential members of the central bank’s policy-setting committee, he would support an interest-rate hike later this year as financial conditions continue to be easy. After 0.1% gain on Monday and little change next day the SP 500 rose 0.1% on Wednesday as a dovish Fed minutes buoyed investors risk appetite. Stock market bulls were heartened as Fed minutes revealed a few policy makers said the bank could “afford to be patient" before raising interest rates again as they saw a greater likelihood that "inflation might remain below 2% for longer than currently expected." The USDIDX ICE dollar index fell 0.4%, erasing most of its previous day gains. SP 500 fell 1.5% on Thursday led by technology sector, down 2%. Investor confidence was undermined by concerns about President Donald Trump's ability to push pro-growth reforms like tax cuts and infrastructure spending programs as prominent business executives’ criticism continued after his reaction to a white-supremacist rally with several members of advisory presidential panels stepping down and President Trump announcing his decision to disband the manufacturing council and his strategy & policy forum on Wednesday. Political uncertainty added to concerns about rich stock valuations.

The dollar index fell 0.3% and SP 500 ended down 0.2% on Friday despite a report consumer confidence index for August rose more than expected to 97.6 from 93.4. The main events this week which may cause heightened volatility are: ECB President Draghi’s speech at the 6th Lindau Meeting on Economic Sciences in Germany at 9:00 CET on Wednesday; and speeches by Fed Chair Janet Yellen and ECB President Draghi at Jackson Hole conference on Friday at 18:00 CET and 21:00 CET respectively.