US China trade war: Currency manipulation and tariffs
It looks as though there is no end in sight to the US China trade war. Like Brexit the trade war is coming at a cost, hurting global business sentiment.
US President, Donald Trump last week confirmed he would impose further tariffs on Chinese goods. On Monday, China then were accused of allowing its currency to weaken to its lowest level since 2008, with Washington accusing Beijing of manipulating the currency. After continuing to weaken, the Yuan held around the 11 year low before China appeared to take steps to stabilise the currency.
USD loses value against other ‘safe haven’ currencies
The continued back and fourths between the US and China may have contributed to the US dollars loss of value against other ‘safe haven’ currencies like the Swiss Franc and Japanese Yen, with economic international growth causing concern amongst investors.
If a solution cannot be found short term which at this stage seems unlikely it could prove costly for the US dollar, what is clear is that neither Trump or Xi Jinping are likely to back down at this stage.
Despite the Federal Reserve cutting rates at its last policy meeting Jerome Powell was keen to stress that the US economy continued to perform well and its decision was more based on the economic global slowdown rather than a complete reflection of the US economy, but left room for further discussion of further monetary policy change if and when is necessary.
GBP/USD exchange rates remain at lows: How is Brexit impacting exchange rates?
Sterling remains fragile against the dollar due to the lack of clarity surrounding Brexit. The time line alone seems unfeasible for a deal to be agreed on Brexit. Parliament will only return from recess on 3rd September leaving less than 8 weeks to get a deal in place. Theresa May had two and a half years. Brussels stance remains the same, stating there will be no concessions made to the current deal. It is not in Brussels interest for the UK to leave with a favourable deal, this has the potential for other countries in the bloc to follow suit. For example, Italy who have been threatened by the EU with a multi billion Euro fine if there is not a real attempt to curb domestic debt which now amounts to more than GDP.
There are also rumours of a General Election with Bet Fair giving a 57% chance of a general election in 2019. You only have to look at how Sterling fell during the 2010 election to see the potential consequences for Sterling in the current climate.
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