It had looked to many investors that world was headed for a trade war and an escalating risk war in Syria. But now it seems less clear. US President Trump’s rhetoric on trade took a more constructive tone, and a divided Administration leaves Syria in a bit of a limbo.  

US equities rallied yesterday, and Asia and European bourses are advancing today, but the conviction may not be particularly strong. The MSCI Asia Pacific Index rose 0.2% for a 1.3% weekly gain. Near midday in Europe, the Dow Jones Stoxx 600 is up 0.15% and 1.2% for the week, making it the third weekly advance. The German DAX and French CAC are at six-week highs.  

The US dollar is mixed, with a slightly heavier bias. The Australian dollar and British pound are leading the advancing currencies. A glimmer of hope that trade tensions may de-escalate is helping lift the Australian dollar 0.5% to straddle the $0.7800 for the first time since mid-March. The weekly gain of 1.5% is the largest this year.  

Sterling has been bolstered by ideas that the Bank of England is the next major central bank to lift rates (next month) and that Brexit may be less extreme. The record from the ECB meeting and the strong indication this week that Austria’s Nowotny’s rate hike talk was not representative of the Board, has seen the euro fell below GBP0.8650 for the first time since May 2017.   

Against the dollar, sterling moved toward $1.43, its highest level since late January. Sterling is rising for the sixth consecutive session and is up about 1.3% on the week. It is also the fifth week in six that sterling has appreciated. 

What appears to be at least a temporary pullback from the proverbial edge has helped lift the dollar to nearly JPY107.70, a seven-week high. We have been monitoring a bottoming chart pattern that projects toward JPY110. Initial resistance now is seen near JPY108. It is the third consecutive weekly advance for the dollar against the yen. S&P upgraded Japanese credit outlook to positive from stable.