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US Dollar Rebounds As Markets Recover From Trade War Fallout

May 14, 2019 at 19:01 by Andrew Moran

One dollar note with a pyramidThe US dollar is rebounding on Tuesday as global financial markets recover from the latest development in the US-China trade war. Despite trade war fears dampening the US economy, experts say that America holds the upper hand because of how strong it is performing. Investors are also combing through recent trade pricing data.

International equities were rocked on Monday after Beijing confirmed it was retaliating with $60 billion in tariff hikes on more than 5,000 US goods. With global trade expected to experience hiccups and rising prices anticipated to affect sales that could hurt corporate earnings, investors were in panic mode. Since then, however, financial markets have recovered, paring half of their losses on Tuesday.

But the pain from the trade war may not end, with the White House hinting that it could target more than $325 billion in Chinese imports. Whatever happens, Beijing has pledged to retaliate to any US tariff imposed on its exports.

While many warn this could lead to ramifications for the US economy, Federal Reserve officials believe the US has the upper hand in any trade spat.

Minneapolis Fed President Neel Kashkari told CNBC that “the US is in a very strong position,” citing strong job numbers, an advancing gross domestic product, and admirable business optimism.

Not only is our economy bigger, our economy is much less sensitive to trade. Trade is important to the US economy, but it’s much more important to the Chinese economy, just as a share of its economy.

So, if there’s a tit-for-tat strategy, and I’m not advocating it, but a tit-for-tat strategy would seem to lean toward the US strength rather than the China strength.

China, meanwhile, has been instituting a variety of fiscal and monetary stimulus measures. Beijing recently introduced across-the-board tax cuts and slashed the reserve requirement ratio for financial institutions to spur lending. So far, the world’s second-largest economy has slightly recovered from last year’s pounding.

On the data front, April export prices rose 0.2% and import prices edged up 0.2%, according to the Bureau of Economic Analysis (BEA). These are lower than what the market had forecast with 0.7% and 0.8%, respectively.

To echo Kashkari’s sentiment, the National Federation of Independent Business (NFIB)’s Small Business Optimism Index surged from 101.8 in March to 103.5 in April.

The USD/CAD currency pair tumbled 0.14% to 1.3461, from an opening of 1.3481, at 18:27 GMT on Tuesday. The GBP/USD plunged 0.34% to 1.2913, from an opening of 1.2985.

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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