Why a Trade War is Helping the U.S. Dollar
- 18 June 2018
The U.S. dollar is on a tear as it reaches for 6 to 12-month highs against other the major currencies.
While the Federal Reserve and European Central Bank’s monetary policy announcements were the biggest events of the week, the U.S.’ trade war with the rest of world is having a greater impact on currencies. Although many people feared that a trade war would exacerbate the dollar’s troubles and reduce demand for the greenback, it instead sent the dollar soaring as investors interpret Trump’s aggressive trade actions as short-term trouble for countries he’s singling out. The U.S. tariffs on China reversed the dollar’s post-FOMC slide and sent euro tumbling 2.5 cents in one day. The euro and Australian dollars were last week’s worst performing currencies. Traders should expect things to worsen as the U.S. now risks retaliation from China after having officially slapped tariffs on hundreds of products. The European Union also endorsed a plan for tariffs on U.S. products that will be implemented in late June, early July. The European Commission meets on Wednesday, June 20th and they could very well back “counter-balancing measures.” All of this means that currencies will be particularly sensitive to headline risk this week.
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