U.S. Dollar Rises Against Yen as Tensions Seem to Ease in U.S. – China Trade War
Thursday saw the U.S. dollar create a new weekly high against the yen as tensions seem to be easing between the United States and China. However, traders still have concerns over the upcoming G20 summit and the results of meetings between the two countries.
Thus, the dollar was trading at 108.11, marking an increase of 0.32% and the highest level the USD/JPY traded at since the 19th of June.
According to the South China Morning Post, Beijing and Washington are working on an agreement that would help remove the threat of additional tariffs on another $300 billion worth of Chinese goods.
President Donald Trump stated, on Wednesday, that he believed it was possible for him and Xi Jinping, his Chinese counterpart, to come to an understanding. However, he also said that he was willing to apply tariffs on all other Chinese imports if talks don’t succeed.
The two heads of state will be meeting at the G20 summit taking place in Osaka between the 28th and 29th of June.
Yamamoto from Mizuho Securities said that the results of the meeting could have significant effects on U.S. monetary policy. He explained that if both countries came to an agreement not to impose further tariffs, it could result in the Fed no longer having to reduce the interest rate.
Conversely, if the talks fail and lead to the application of more tariffs, it could be just the incentive that more cautious policymakers require to agree to rate cuts.
US Dollar Relatively Flat Against Other Currencies
At his last press conference, Jerome Powell made it clear the Fed was independent of the White House and he wouldn’t be taking direction from President Donald Trump.
Trump responded to Powell’s assertion, stating that the latter was someone no one had ever heard of before and that Powell owed his position to the President. Despite this, Powell wants to show that he’s tough, despite the fact that he’s not doing a good job.
Clearly, President Trump is unhappy with Powell, especially since the former was planning on using economic growth as the foundation of his re-election campaign. President Trump has stated repeatedly that he feels Powell is not doing enough to stimulate the U.S. economy.
Powell responded to Trump’s statement by stating that the Fed is a “nonpolitical agency” and that while they are human and can make mistakes, those mistakes won’t be of character or integrity.
This back and forth is doing little to give the market confidence in the US dollar, even with the accelerated U.S. GDP numbers for the first quarter of the year. Thus, annualized GDP saw an increase of 3.1%, while forecasts remained the same.
However, expectations for a rise in consumer spending was amended to a lower level. It seems, though, that better results are expected for business investment in intellectual property producers.
The accelerated GDP, though, didn’t have a significantly positive effect on the U.S. economy as it only grew by 1.3%. This figure does not take into account inventories, government spending, or trade.
This slow economic growth – the slowest since mid-2013 – resulted in muted market sentiment and to flat trading sessions for the USD.
US Dollar vs Pound Sterling
Depending on the figures related to the first quarter of the U.K.’s GDP due to be released on Friday, the pound could experience some gains against the US dollar.
Thus, if the GDP experiences a higher increase than expected for the first quarter, the pound could experience some gains.
Sentiment related to the USD could remain weak after the release of the Chicago Purchasing Managers’ Index (PMI). If the latter comes out lower than expected, the USD/GBP could slide.