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US Dollar Higher on Fed Rate Cut Fallout, Capped by New Trump Tariffs

August 1, 2019 at 19:50 by Andrew Moran

One cent coin stands on 100 dollar notesThe US dollar is gaining on several major currency rivals in public trading on Thursday. But the US Dollar Index is heading in the opposite direction, falling below 98.5. The Federal Reserve’s cut to interest rates, President Donald Trump’s new tariffs on China, and economic data are driving the greenback’s trade.

President Trump announced on Twitter that he will impose 10% tariffs on an additional $300 billion of Chinese goods, effective September 1. This will not include the $250 billion of products already subjected to tariffs. The tweet comes as a delegation of US representatives returned from trade negotiations in Beijing.

He claimed that China broke its promise of purchasing American agriculture and stopping the export of fentanyl. Trump did confirm that both sides will continue to talk.

Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing.

More recently, China agreed to buy agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die!

Trade talks are continuing, and during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%.

We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!

US and foreign financial markets tanked soon after the announcement was made, giving up gains from earlier in the session.

It is possible that the president believes he now has some wiggle room after the US central bank cut rates for the first time in a decade. On Wednesday, the Federal Open Market Committee (FOMC) announced a quarter-point rate cut to a target range of 2.00% and 2.25% and an earlier-than-scheduled freeze on balance sheet normalization. Fed Chair Jerome Powell rejected that this will lead to a series of long-term rate cuts in the future, but the market does anticipate another 25-basis-point rate cut next month.

On the data front, initial jobless claims for the week ending July 27 came in at 215,000, up from 207,000 in the prior week. The Markit Manufacturing purchasing managers’ index (PMI) for July read 50.4, construction spending fell 1.3%, and manufacturing new orders rose from 50.0 in June to 50.8 in July.

On Wednesday, mortgage applications for the week ending July 26 tumbled 1.4%, up from a 1.9% decline in the previous week. The 30-year mortgage rate was left unchanged at 4.08%. The Chicago PMI clocked in at 44.4 in July, down from 49.7 in June – anything below 50 indicates a contraction.

The US Dollar Index slipped 0.12% to 98.40, from an opening of 98.59. The buck is on track for a weekly gain of 0.6%. So far this year, the dollar is up 2.3%.

The USD/CAD currency pair jumped 0.19% to 1.3218, from an opening of 1.3191, at 19:40 GMT on Thursday. The EUR/USD dipped 0.1% to 1.1079, from an opening of 1.1090.

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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