The US has accused China of mobilizing its currency to gain the upper hand in trade. Having threatened to levy tariffs on the remaining $300 billion of Chinese imports everyone expected to see a weakened Yuan and a stronger dollar. However, when the Yuan moved according to expectations trump demanded China be branded a currency manipulator urging the International Monetary Fund (IMF) to get involved.
So far there is little evidence to suggest China has been underhand and no action has been taken by the IMF. The Bank of International Settlements suggest the Yuan is 13.4% above its 15-year average while the dollar is up 10.3%. The American consumer is the real winner in the trade war with Chinese Imports being cheaper and taking the sting out of the US Tariffs.
It’s a high-stake game for both countries, China wants continued access to US markets and Tech. Trump wants to get re- elected next year and can't show any incompetence towards the US economy. This will be a waiting game for both countries regardless of the dangers.
What next for the US Dollar? Even with the Brexit and ongoing trade war with China, as long as the US economy continues to lead then we would likely see the currency strengthen.
Bond Yields and curves, what does it all mean?
For the first time since 2007 the US Treasury yield curve showed signs of inversion. An inversion in the curve is usually seen as a reliable warning for an impending recession. The inversion of the Treasury bond yield curve would “have to be sustained over a period of time” to be taken as a “bearish” signal for the US economy, St. Louis Federal Reserve President James Bullard said on Thursday.
More good news for the US economy was the unexpected US retail sales figures which seemed to calm down any speculation of the US going into a recession. The dollar was then able to advance modestly against the safe- haven Yen.
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