The US dollar has kept a strong grip over its major currency counterparts so far, successfully keeping cable interbank rates marooned under the 1.21 mark on the back of yet more positive consumer spending readings at the start of the week. Major investment banks expect this trend to continue with the pound likely to struggle as we draw closer to the Brexit deadline in October.
So much so that further dollar gains are expected despite many already forecasting back to back Interest rate cuts from the federal reserve in September and October, the likes of which would typically weaken the value of the currency in question.
Morgan Stanley for example cited the escalating trade war and weaker than expected domestic business confidence as clear drivers for curbing inflation levels, which has already started to force the Fed’s hand. The fact the dollar’s value has continued to drive upwards goes some way to highlighting the lack of faith in the pound at present.
Focussing on the trade war with China, the global markets will have been relaxed Trump’s decision to delay the tariff rise on Chinese goods, in a bid to protect consumers during the festive period and indeed fend off the growing fears of a global recession.
Before this statement, Morgan Stanley were predicting a global recession will come if the trade war escalates through the U.S. raising tariffs to 25% “on all imports from China for 4-6 months.”
“As we view the risk of further escalation as high, the risks to the global outlook are decidedly skewed to the downside,” chief economist Chetan Ahya said.
China had promised to retaliate to new tariffs that President Donald Trump said were due to begin on Sept. 1. China’s response to the US president’s withdrawal is yet to hit the headlines. Volatility could be expected given the global implications it may hold.
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