The US dollar is set for a volatile end to the week ahead of the G20 summit that starts tomorrow in Argentina. The financial and currency markets are both awaiting developments from China and the US on whether an agreement on future trade can be reached. US President Donald Trump has reignited tensions this week after stating that he is likely to go ahead with a hike on existing tariffs on Chinese goods. He has hinted that tariffs may now rise from 10% to 25% on $200 billion worth of goods. He went further by adding that he may seek to impose tariffs on all Chinese goods if talks don’t go well.
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It is worth remembering that there are approximately another $267 billion worth of additional goods where tariffs could be applied at either 10% or 25%. This would include IPhones and laptops which are currently excluded.
The dollar has seen a sharp strengthening this week on the back of the comments as investors flock to the safety of the dollar as concerns have been raised that more tariffs could be negative for the global economy.
President Donald Trump and Chinese leader Xi Jinping are expected to hold talks away from the summit on Saturday to look at ways to settle their trade differences and reduce the need for tariffs. Any developments or concessions could make for a lively start for dollar exchange rates next week.
US Gross Domestic Product data for the third quarter arrived at 3.5% as expected. Although this was higher at 4.2% for the second quarter, the recent figure is still strong although the drop will be raised as a concern by the US Federal Reserve.
Consumer expenditure data for October is released this afternoon and should give some indication as to how strong the American consumer is at present. The data could help dictate the decision from the Fed as to whether it will raise interest rates at the next opportunity in December. There have been some reservations that the view on the US economy is starting to look less optimistic. The view is that there could now be a pause in the middle of 2019 in the rate tightening process.
US Jobless claims and pending home sales are also released today but it’s the Fed minutes from the last meeting this evening which should shed some light as to the Fed’s thinking. The US economy has proved extremely buoyant this year which should still lead the Fed to raise rates in December lending further support to dollar exchange rates.
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