Risk off conditions gripped markets after Trump threatened to take the U.S. out of the WTO while signalling that he's ready to take the Sino-U.S. trade war to the next level, which for the main currencies translated to Yen outperformance and Aussie Dollar-led Dollar bloc underperformance. The Turkish Lira still managed to rebound by over 2% as Ankara announced fresh measures to halt the rout, though emerging market currencies continued to look vulnerable, with the Indonesia Rupia hitting a 20-year low and India's Rupee a record low. EUR-USD has settled lower against this backdrop, back to the mid 1.1600s after earlier upward forays stalled at 1.1690-92. EUR-JPY, EUR-CHF and other Euro crosses also traded softer, though the common currency still managed gains against the underperforming Dollar bloc units. Hawkish comments from ECB's Nowotny were counterbalanced by a dip in Eurozone HICP inflation to 2.0% y/y. ECB's Rehn rejected Trump's charges of currency manipulation while Commission President Juncker threatened retaliation should the U.S. impose car tariffs. USD-CAD popped above 1.3000 after a third day of U.S.-Canadian trade talks in Washington failed to produce a deal, though there remains hopes for a handshake later today. USD-JPY logged a 9 -day low at 110.68, extending declines seen yesterday from the upper 111.0s. AUD-JPY was the biggest mover out of the main dollar pairings and cross rates, losing 0.5% in making two-week lows. Japanese data today included a rise in August core Tokyo CPI to 0.9% y/y, above the median forecast for 0.8%. The PB0C set the USD-CNY reference rate higher for a second day, at 6.8246, versus 6.8113 at Thursday's fix.
