Escalating Trade War
The escalating trade war between USA and China keeps broader currency markets concerned.
Trumps threatened fresh Tariffs of 10% on $200bn Chinese goods if China “insists on going forward with the new tariffs”.Although, some analysts support that Trump’s announcement was only a negotiating card just to put pressure on China the markets reacted.
Currency markets generally dislike intervention. Open economies rely on world trade, so a potential trade war threatens their stability. The escalating trade dispute between the United States and China keeps broader currency markets concerned.
Safe heavens, like the Yen and the Swiss Franc strengthen. Investors tend to boost such currencies to limit their exposure to losses in times of market turbulence. In the forex market, the Swiss franc is considered a safe haven currency. However, there is no guaranty that such safe heavens are to maintain their values during periods of market volatility. Furthermore, what constitutes a safe haven changes over time.
On the contrary, currencies like the Australian Dollar weaken and trade war escalation may put further pressure on them. The Australian dollar is highly exposed to global growth, while Australia is one of China’s biggest trading partners.
Oil prices dropped 2% before the end of OPEC meeting and it seems that top suppliers will agree to increase output. Brent which was above $80 a barrel last month, has fallen in recent weeks as Saudi Arabia has signalled it intends to raise production.
Oil ministers from the Organization of the Petroleum Exporting Countries meet on Friday in Vienna, followed by talks with non-OPEC oil producers on Saturday.
Mario Draghi, head of ECB, said it was too early to evaluate the monetary policy impact of an escalating trade war between the United States and its partners. He also mentioned that there was no reason for optimism.
The dollar inched up to an 11-month high amid concerns over trade war escalation. The dollar index strengthened against its major-traded rivals. Long-term treasury yields also recovered from 3-week lows.
The dollar rose 0.2% to Yen, being ever more distant from Tuesday’s one-week low.
The Swiss Franc remained almost unchanged as the Swiss National Bank decided to keep the negative interest rate on hold.
The Sterling dropped to new 2018 lows ahead of BoE policy meeting this week and expectations that the Bank of England will keep the rates low. The pound traded flat against the common currency.
The Euro dropped 0.2% to 2018 lows due to traders’ expectations that there would be an extended monetary divergence between EU and US central banks.
Oil prices dropped 2% before the end of OPEC meeting on Thursday and it seems that top suppliers will agree to increase output.
Sources: Reuters, Euronews, bbc.com
PLEASE NOTE The information above is not investment advice.