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US Dollar Gains on Mixed Data, China Trade News

January 18, 2019 at 16:43 by Andrew Moran

Some USD bills and US cent coinsThe US dollar gained momentum on Friday, extending its gains over the past week. The greenback edged higher on mixed economic reports were released and breaking news that China is offering a $1 trillion-a-year olive branch on imports that could end the trade war almost immediately.

Consumer sentiment cratered to its lowest level since President Donald Trump was elected. The University of Michigan index plunged from 98.3 in December to 90.7 in January. The median estimates had pegged a reading of 97.5.

What drove the decline? Richard Curtin, chief economist for the survey, listed several factors:

The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.

In other data, US manufacturing production in December spiked by the most in 10 months, buoyed by output in motor vehicles and other consumer goods. According to the Federal Reserve, manufacturing output rose 1.1% last month, beating market forecasts of 0.3%. Factory production has now increased a 2.3% annualized rate in the fourth quarter.

Earlier this week, the producer price index (PPI) dropped 0.2%, bringing the 12-month wholesale inflation rate to 2.5%.

Investors are salivating over breaking news reports from Bloomberg that China has offered to ramp up imports from the US. According to the business news network, Beijing has proposed to purchase American products totaling $1 trillion per year for the next six years.

Should Beijing institute this policy, the world’s second-largest economy would eliminate its trade imbalance by 2024. In 2018, China had a trade surplus with the US of $323 billion.

This comes one day after The Wall Street Journal reported that Treasury Secretary Steven Mnuchin suggested minimizing tariffs on Chinese goods as both sides engage in bitter trade negotiations. The speculation was shot down after a senior White House official confirmed that “no discussion of lifting tariffs now.”

Both reports have sent global equities markets surging.

The USD/CAD currency pair tumbled 0.23% to 1.3245, from an opening of 1.3280, at 15:12 GMT on Friday. The EUR/USD slipped 0.25% to 1.1364, from an opening of 1.1390.

If you have any questions, comments or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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