Wednesday, June 27, 2018

The trade war ignites the currency war again

  • China
  • Dollar

A risky theme takes over international markets placing it under pressure, creating a decline in currencies and stocks. Threats of tariffs were enough to stem recent selling as US-China Feud continues. And as Trump tackles the 700 Billion worth of trade deficit, it seems to be leading us to a new possible battle of currencies, whereas countries affected by the trade war have started to show signs of an undeclared depreciation of their own currencies that have lost more than 5% over this recent period like the Yuan, Euro and the Pound.

The question asked here is how the US administration will deal with this reality that will adversely affect the trade deficit as the dollar continues to surge and as the US treasury department closely monitors the list of ally countries that are most influential towards the US economy, specially that the US exports have been recovering in the last three months with an increase of 4 billion dollars and 15 billion when compared to last year, under Trumps protectionist policies.

Previous reports by ADSS warned the repercussions of the trade war especially after the failure of the G7 summit to reach an agreement, noting that the trade war and tariffs imposed will strengthen the US position and the weak dollar policy will be dispensed and that’s what’s currently happening as the USD rises to record levels not seen since a year ago and the Euro/USD touches levels of 1.15.

The next steps will fall center on how the US administration will handle the sharp rise of the USD and if the Fed will take action, in such a way to find balance between the USD and other major currencies that doesn’t affect the US trade balance or will the currency war continue…

On a different note, Resistance of Brexit and its actual risks spooked fears with a recent study suggesting that prices will inflate with households up by 1000 pounds a year, total costs per households will go up by 961 pounds on average and unequal costs for lower income labor, other costs will include all those consumer businesses that will witness a decrease in profits. Similarly the pound has been far from fresh, hitting lows mostly because of weaker figures, Bank of England’s policy anticipation and Theresa Mays setbacks. However if important lobbyists continue to fight Brexit and claim that Europe couldn’t live on without a British presence, the pound will change its course to the upside.