The greenback has made ground after the escalation in the US China trade war after President Trump increased tariffs on $200bln of Chinese goods bound for the US. Although Trump has recently tweeted that “trade talks are going to be very successful” he is yet confirm who for.
Escalation in US China trade war
The Chinese have responded and imposed their own tariffs on the US this week. The US have already threatened to further escalation adding tariffs on a further $300bln worth of Chinese goods. Due to the US dollars safe haven status the currency is gaining strength as the global economic uncertainty is making investors stick to a safe bet.
The next meeting between Trump and XI Jinping will be held June 28th-29th in Osaka at the G20 meeting. Trumps tariffs will be implemented on 1st June and the their impact should not be underestimated.
Federal Reserve Future Monetary Policy
It is commonly assumed that the Fed will now seek to pause its interest rate tightening cycle for the foreseeable. The Fed raised interest rates four times in the last 12 months but are now hoping for inflation to rise higher after it has remained persistently low. There is the potential for rate cuts should we see inflation fall.
The US China trade war could influence on the Fed’s decisions on future monetary policy. President Trump has hinted that China will now look to use quantitative easing or similar unorthodox measures to try and offset the tariffs. Trump has also called upon the Fed to match any measures from China.
Trumps tweeted the following yesterday, “China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a match it would be game over, we win! In any event China wants a deal!” If there is any change in policy from the Fed this will impact the US dollar.
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