The US dollar looks set for more volatility after US President Donald Trump escalated the trade war between the US and China by imposing new tariffs on Chinese imports worth an additional $200 billion. The USD report below discusses the potential ramifications of the increased trade tarfiffs on the safe haven currency; the table displays the range of cable exchange rates during the high and low points of trading yesterday.

Currency Pair% ChangeDifference on £200,000

Donald Trump has warned that if China retaliates by imposing its own tariffs then the US will escalate the row and enter what the President has called Phase Three. Phase Three would see a further $270 billion worth of tariffs in this outcome which would effectively cover all Chinese goods coming into the US. These kind of very substantial numbers are considerably more than the $50 billion that was announced in two tranches over the summer and so the real impact globally remains to be seen. The new tariffs will take effect on September 24th starting at 10% before rising to 25% January 1st 2019.

China has now responded with $60 billion worth of tariffs so how the Trump administration responds again will be of huge interest.

Just like in the UK with its South African variant and higher infectivity rate, the US is suffering from the UK variant dubbed B.1.1.7. Whilst vaccinations within the US remain strong and will continue to grow under the Biden administration, a twinge of uncertainty still remains in the air as to how quickly the US can get the virus firmly under control and bring the R rate to below the vital 1.0 level that the UK has managed. Until that point in time, it will remain difficult to determine which direction the USD may take. However, with the most globally traded currency pairing, the EUR/USD, becoming a one-sided battle in favour of the US dollar, it could be a good indicator of better times ahead. Question is, is this movement purely just based on euro weakness as opposed to USD strength?

US Fed Outlook

The US Federal Reserve are widely expected to raise interest rates at the October meeting whilst there is now a growing expectation that the Fed will need to hike at the December meeting. A rate increase in December this year will take the total to four for 2018. There are a number of Fed officials who are openly leaning towards higher interest rates following the substantial tax cuts and spending programmes introduced under US President Donald Trump. The markets are also preparing for a possible two further hikes in 2019, the pace of which should prove beneficial for dollar exchange rates.

US Housing data released yesterday arrived better than expected providing some support to the dollar.

There have been concerns that the US housing market could be about to falter and it is normally the housing market and construction sector which suffers first ahead of a downturn. More US housing data will be released this afternoon in the form of mortgage applications, building permits and housing starts. The releases could help direct the Fed as any signs that interest rate increases are starting to bite could slow down the pace of any future hikes.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.