Monday, August 6, 2018

A possible US intervention to cut short currency manipulation


A possible US government intervention to limit the process of devaluing major currencies against the USD falls within a protectionist narrative. Although raising liquidity levels, this started in China where the yuan fell against the USD to levels unseen since 2014.

The US imposed 10% to 15% more tariffs on Chinese imports this week, presenting determination for pursuing protectionist policies. This leaves no more room for negotiations and ultimately pushes “America first” as the number one priority for this administration.

On the other hand, China’s economic and trade capacity has boomed. There is a re-positioning to the balance of power and according to the national bureau of statistics, China’s exports used to account for more than 30% of GDP. This percentage has fallen to only 18% today, due to an increase in domestic consumption rising from 38% to 51%. This reflects a significant rise in domestic demand and low reliance on exports.

Trump’s strategy to move forward with his US interests without a halt plus the reduction in the US trade deficit by 30% was earlier indicated by the ADSS strategic team in previous reports.

These developments led to uncertainty in the market, especially as the effects of such policies will lead to more even more volatility in all directions in the future.