Trump causes partial Government Shutdown
The US Dollar has still been performing of late, despite recent press that could be deemed detrimental to the US economy, in particular the partial US Government shut down.
Terms were not agreed on the Budget and President Trump is particularly not happy he has not received funding for his border wall. This has resulted in a partial Government shut down which will cause a hit to the US economy.
Trump has also made headlines due to a range of policy decisions affecting the complete military withdrawal from Iraq and Syria.
Donald Trump has caused significant volatility on the US Dollar since his appointment and this is no doubt set to continue. He is already attempting to influence the Federal Reserve in regards to future monetary policy. The President is concerned the Dollar will become too expensive and this will become detrimental to US exports. The Federal Reserve is meant to act as a separate entity to the Government and could well be doing so, but following a series of negative tweets from Trump we did see next year’s outlook from the Fed dropped from three predicted interest rate hikes to two.
US-China Trade War
This trade war at present has the US in the driver’s seat. The trade war is a threat to China’s already slowing economy. China’s 2018 growth forecasts missed economist’s forecasts by 0.1% in the 3rd Quarter, landing at 6.5%. These are the worst figures since 2008.
The trade war is having a disproportionate effect on the Chinese economy when compared to the United States.
China’s exports to America amounts for a larger proportion of the Chinese economy than the amount to which China-bound US exports represent to the US economy. In 2017 China exported USD $500bn worth of goods to the US out of USD $12tn, compared to the US who exported $130bn worth of goods to China out of it’s USD $19tn GDP.
The current trade war truce has been put in place as China have agreed to sit down to discuss changing it’s current economic model of intellectual property theft and forced technology transfer. I am of the opinion the Chinese will not bow down to pressure on this matter. It could be the case that President Xi Jinping intends to make as few concessions possible and wait out the trade war in the hope that there is a recession or Donald Trump loses power. Reuters currently have the chances of a US recession in the next two years at 40%.
This is a dangerous game as Trump has threatened to implement a 25% increase on tariffs if the Chinese do not budge. This would no doubt hurt both sides and also increase global economic uncertainty as a whole.
Despite this Brexit uncertainty is still anchoring the Pound and there is little hope for a Sterling rally short term. It may be wise to take advantage of current levels if you have to move short to medium term.
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