US Dollar May Rise if US GDP Data, Trade War Risks Spook Markets

USD Chart 2-Hour

US DOLLAR FORECAST: BULLISH

  • US Dollar may rise if US GDP data undermines Fed rate cut forecasts
  • Deterioration in US-China trade war talks could amplify risk aversion
  • Demand for liquidity helping buoy US Dollar as global growth slows

Learn how to trade political volatility!

The US Dollar may rise next week at the expense of cycle-sensitive classes if US GDP data beats expectations and cools Fed rate cut bets against the backdrop of ongoing fragile US-China trade talks. Relations remain strained and are scrupulously monitored by investors who are getting increasingly worried about global growth prospect. In this anxious environment, demand for liquidity has been steadily pushing the US Dollar higher.

US-China Trade War

On Thursday Mr. Trump’s advisor Michael Pillsbury stated that the president is ready to impose further tariffs if both sides don’t agree on a deal soon. Beijing and Washington have recently reached a mini-détente after Trump delayed a levy on $250 billion worth of Chinese goods from October 1-15 and hinted at a possible interim trade deal. However, given their recent history, it would not be surprising to see talks fall apart again.

FOMC Recap

At the most recent FOMC meeting, the central bank once again cut the benchmark interest rate by 25bp. However, markets were not particularly receptive to Fed Chairman Jerome Powell’s commentary where he reiterated the central bank’s data-dependent approach to policy and partially cooled rate cut bets. However, eroding fundamentals and greater geopolitical uncertainty have left investors yearning for more liquidity.

How Low Can You Go?

US Implied Policy Rates

Slower Global Growth, Rising Geopolitical Risks Fueling Demand for Liquidity

The OECD recently revised the global growth trajectory from 3.2 percent to 2.9 percent, the weakest expansion since the 2008 financial crisis. The report cited ongoing global trade tensions as a major headwind and warned that a no-deal Brexit could plunge the UK economy into a recession. In this uncertain environment, a premium has been placed on anti-risk assets like the US Dollar and a discount on its pro-risk counterparts.

Gloomy Premonitions Cloud Investors’ Minds

Global Economic Policy Uncertainty Index

US DOLLAR TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter



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