US President Donald Trump has been in contact with the Chinese President Xi Jinping in a bid to reduce the tensions caused from the escalating trade war that has been ongoing for the past year.
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This follows Trump having doubled the tariffs on $200bn worth of Chinese products and has threatened to impose further tariffs on $300bn unless a deal can be negotiated. This has been met with similar retaliatory measures taken by China in which they have imposed increased tariffs on $60bn worth of US products.
Whilst tensions still remain high, a Chinese think tank has cautioned China not retaliate too aggressively as they want to “bring the US back to the negotiating table”. This message precedes the G20 Summit meeting in Osaka, Japan to which talks will be undertaken to de-escalate the trade war and come up with a sustainable, long term deal for both countries.
Whilst these bouts of retaliation and rate hikes may seem disruptive for the US, due to the USD being a safe haven currency the uncertainty that this trade war has brought about has led to an increase in strength for the dollar. At present, the USD/GBP interbank rate is sitting around levels it hasn’t seen since January of this year. However, this could also be argued that this is partially due to the weakening of the pound with its long-term issues surrounding Brexit.
In other developments, tensions in the middle East have also been on the rise as Iran shot down one of the US unmanned drones over the Strait of Hormuz.
The US has been flying surveillance drones around Iranian borders after growing fears of their nuclear programme as well as the accusation of detonating mines on two US ships this month. The US have responded by sending more troops into Iran to deal with the “hostile behaviour”.
As with the China trade war, this has not impeded the growth of the greenback as it continues to make solid progress against most major currency pairings.
On Tuesday, US Federal Reserve Chairman Jerome Powell will be making a speech following his remarks last week regarding his stance on the monetary policy outlook. As with all Central Bank speeches, high currency volatility is likely to occur following these events and depending on what is discussed, there could be a temporary slump in USD strength.
Alongside the Non-defense Capital Goods Orders release, Thursday provides the main US data for the week with its Gross Domestic Product (GDP) release. This will provide a measure of market activity and indicates the pace at which the US economy is at.
It is predicted that the US will retain the steady growth it has seen in previous quarters with a predicted growth rate between 2 and 3%. Should the actual figures fall in line with these market predictions the USD has the potential to see gains against its major counterparts. Henceforth, it may be worth a quick call in to your account manager if you wish to move USD funds to discuss all available options.
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