US Dollar Forecast: Trade War and Forward Monetary Policy does not bode well for US Dollar
The US Dollar could be facing a rough year. Federal Reserve Chair, Jerome Powell has had a dovish tone when discussing potential rate hikes at his past few press conferences and the new stance from the Fed seems justified considering the problems that are facing the US economy.
US President, Donald Trump has put in place a partial Government shut down in an attempt to force funding for his US/Mexico wall. This is now the longest partial shutdown in history. President Trump remains stubborn and the shutdown is set to continue. It will not be long before this begins to affect US economic data.
The US-China trade war also could be set to escalate. There is currently a 90 day truce in place where tariffs are not in effect. The truce was put in place under the condition that China would come to the negotiation table to discuss changing their current economic strategy. Chinese President, Xi Jinping will be reluctant to make any changes and we could see the Chinese make as few concessions as possible and attempt to elongate the trade war until Donald Trump is no longer in power.
It is a dangerous game as President Trump has threatened to implement a huge increase on Chinese goods and services to 25%. China would no doubt retaliate and this has the potential to hit the US economy hard, and in turn the US Dollar. The Dollar could have a tough time against the majority of major currencies.
Could the Pound strengthen against the US Dollar?
If it were not for the terrible state of affairs in the UK due to Brexit, I feel the pound could be making decent gains against the US Dollar. The Brexit situation is shrouded in uncertainty and I think at present the most logical option would be a second referendum. Brussels’ deal is unacceptable with British MPs not prepared to put the deal through. The EU have made their stance clear that they are not willing to make any concessions and it does not look like they are willing to budge, look at what happened when May delayed the December vote to re-negotiate. She was stone walled.
Popular opinion is that there will be a delay to Article 50, but this seems pointless if there is no room for re-negotiation. Despite many feeling a second referendum would be undiplomatic I think it is the opposite. I don’t think people knew what they were voting for. I don’t think anyone believed the deal on offer would be this poor and a no deal Brexit causes too much risk. A second referendum in my eyes is the most diplomatic way forward.
The likelihood is for a delay, which would no doubt keep the pound in a fragile position for the foreseeable.
If you have to purchase the Greenback short term it may be wise to take advantage of current levels.
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