FX round-up: US dollar gains on US-China trade rhetoric, pound 'shorts' pile up

The pound traded on a mixed note on Tuesday, as traders digested the results of the elections to the European Parliament at the weekend and continued hawkish rhetoric on trade out of the US and China.

As of 1652 BST, sterling was edging higher versus the single currency, despite news that the Brexit party had made off with 29 of Britain's 79 seats in that chamber.

For Rabobank's Alexandra Dumitru, the most likely scenario was shaping up to be a further delay to Brexit in order to hold general elections, with an orderly Brexit the most likely outcome that would ensue, but the chances of either a hard Brexit or a 'Bremain' were almost as high.

To take note of, the latest US CFTC data revealed what Rabobank's Jane Foley labelled a "surge" in speculators' short positions in cable to -26,152 contracts for the week ending on 21 May, which was up from -3,318 contracts one week before.

In the background meanwhile, the US dollar spot index was adding 0.23% to 97.8390 and moving just below its 52-week highs after US President Donald Trump hinted at the possibility of further hikes in tariffs on Chinese exports.

Against the pound, the US dollar was up by 0.13% to 1.2664 while euro/dollar was losing 0.19% to 1.11725.

But the biggest moves in the US dollar were those against the Swiss franc and the Loonie, against which it was gaining 0.51% to 1.009 and 0.24% to 1.3772, respectively.

Speaking at a press conference in Japan on Monday, US President Donald Trump, who had predicted a swift end to the trade war during the previous week, said he was "not ready" to make a deal with China.

"I think they probably wish they made the deal that they had on the table before they tried to renegotiate it. They would like to make a deal. We're not ready to make a deal," he said.

He also said that American tariffs on Chinese goods "could go up very, very substantially, very easily."

Linked to the above, the Greenback was edging higher by 0.18% to 6.9101 against China's yuan.

That was followed on Tuesday by remarks from a senior official at China's state planner who reportedly said that Beijing would prioritise domestic demand for so-called rare earths, a key element in many high-technology and defence applications, in what appeared to be a clear move to ramp up the pressure on Washington.

On the data front meanwhile, the Conference Board's gauge of US consumer sentiment notched up a six-month high of 134.1 in May, after a print of 129.2 for April (consensus: 130.0).

However, the year-on-year rate of increase in the S&P Core Logic Case-Shiller's national home price index slipped from the 3.9% pace observed in February to 3.7% for March.