The current frosty relations between not only the US and China, but also Europe and Canada could cause serious problems for the US economy if the Federal Reserve continue to raise interest rates.

Currency Pair% Change on 18/10/18Difference on £200,000
GBPUSD0.55%$1,220
Continuous rise in rates and Tade War could spell trouble for US economy

Ronald Temple, head of US equity for Lazard Asset Management predicts there could be a recession by 2020. He believes that Trump’s protectionist policies may lead to a significant slowdown In the US economy particularly as the trade wars coincide with rising interest rates.

He stated “A recession in the near term is not inevitable, but the risk of one by 2020 has increased substantially in the past few months. Take trade wars off the table and that significantly reduces the risk of recession.”

It is likely that the US is overestimating how much China needs to import from America. China now has more options than previously. The current stance from the Trump administration makes a prolonged stalemate highly likely.

Trump has been vocal with his criticism of the Federal Reserve and their continuing rise in rates, as he realises this could be detrimental in winning his trade war with the Chinese. Although things are looking impressive currently in regards to the US economy the current trade war does have the potential to have serious implications on the US economy moving forward, if the Federal Reserve continues with it’s current forecast. There are rumours of a further potential rate hike in 2018.

Manufacturing & Services PMI Wednesday 24th October

The next important data releases from the States will be Manufacturing & Services Purchase Manager Index (PMI) figures next Wednesday. PMI gives us an idea of how each business sector is performing and as Services and Manufacturing both contribute significantly to overall GDP the readings can cause volatility on the currency market. A figure above 50 indicates growth. There is expected to be little movement on manufacturing figures which is expected to land at the same as last month at 55.6, however Services data has the potential to cause dollar strength if the figure comes in line with expectations of a rise from 53.5 to 55.9.

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