Market speculation intensified yesterday as markets worried that global trade tensions could force the Federal Reserve into cutting US interest rates. The USD was broadly sold off Monday and Tuesday following Fed speaker Bullard’s comments at a two-day conference on Monday evening, where he stated that a ‘rate cut’ may be warranted soon. Confirmation was added to this as Jerome Powell, Chairman of the Federal Reserve said that global tensions could well force the US into adjusting monetary policy.
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Markets are currently being unnerved by the US’s latest spat with China. China have recently hardened its stance by limiting the amount of rare earth metals entering the US. President Donald Trump has also applied pressure on Mexico, stating that he intends to raise tariffs on Mexican imports in response to illegal immigration into the US. In addition, the President tried to lighten the mood in the UK yesterday when he confirmed he thinks the UK will leave the EU and a ‘phenomenal’ trade deal between the UK and US will materialise.
Whilst the trade wars are being ‘monitored closely’ according to Jerome Powell, the concern for the Federal reserve is the recent dip in inflation that we saw in last month’s CPI index. The next round of US data is likely to be pivotal to the future price of the Greenback and kicking off these closely watched data releases is the ISM non-manufacturing data released later today. The manufacturing sector unexpectedly fell on Tuesday as fears of the trade war mount in the US. On Friday, the latest labour report will be released and is expected to show healthy gains of 195K new jobs, 3.6% unemployment rate and 3.2% wage growth. Any deviation of these figures and we could see a large sell off in the USD as we end the week, whilst better than expected figures could stem the blood flow out of the USD for now.
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