Dollar interbank rates are expected to be sensitive to any political and statements made at the eagerly awaited G20 summit in Osaka later this week. This meeting which starts on Friday will be the first time leaders Donald Trump and Xi Jinping have met since trade talks broke down in May.
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The trade war has lasted for almost 1 year and is having a negative impact both in the US and China as well as the wider global economy. How the meeting goes and whether a truce is made could cause volatility for dollar interbank rates.
A trade deal would be welcome news for the US economy although much of the strength of the dollar is stemming from the uncertain global outlook on growth which is persuading investors to move to the safety of the dollar. If anything the dollar could begin to weaken if investors become more confident in the global outlook. Judging by recent dialogue between the US and China this still seems some way off. Meanwhile in the US the economic data continues to look weaker after US new home sales fell for the second month in a row by 7.8% reinforcing the view that the US Fed will act and cut interest rates.
The US dollar could see volatility after US President Donald Trump imposed new sanctions specifically on top Iranian officials including the foreign minister Mohammad Javad Zarif. The move is expected to freeze billions of dollars in Iranian assets and has not been received well by Iran. A spokesman for Iran said “Imposing useless sanctions on Iran’s supreme leader is the permanent closure of the path of diplomacy. Trump’s desperate administration is destroying the established international mechanisms for maintaining world peace and order.”
The sanctions follow tussles in the in the Gulf of Oman where US vessels were attacked and a $110 million drone shot down which nearly escalated into a military strike from the US. With tensions already running high the dollar could possibly see volatility on the back of any new developments. The US dollar retains its safe haven status and any movement closer to a war may perhaps result in US dollar strength.
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