According to Donald Trump, Friday will be "a very cool day." The wait is not long, the countries will converge in the second round of negotiations today. The US President reassured the markets a bit, announcing the receipt of a "beautiful" letter from Xi Jinping. Although Washington has already launched the process of raising tariffs on Chinese imports, it can cancel everything at any time.
In addition, D. Trump appeared in the hands of a new trump card. The data for March showed that the trade balance deficit with China without adjustments decreased to $20.7 billion. This is the lowest value in the last 5 years. Supplies of goods to China rose by 23.6%, while imports fell by 6.1%. The owner of the White House can now safely talk about the correct impact of fees. As we remember, in July last year, the US imposed them on supplies of $50 billion from China, in September the taxable base was increased by $200 billion at a rate of 10%, from May 2019, the tariff rose to 25%.
While the whole world is waiting for the story to end with the escalating conflict, the sellers of the EUR/USD pair cannot receive tangible benefits. Carry-traders close positions and go into funding currencies, including the euro. Moreover, the report on producer prices in the US for April allowed buyers to consolidate above $1.12. Investors are worried about inflation, as indicators have not reached forecasts. If inflation continues to slow, the Fed will be forced to lower rates. The inflation report is expected to be published today. The dollar will be supported by an increase in the growth rate of the indicator, and the main pair, as a result, will be under pressure.
Recently, the belief in easing the Fed policy has been growing. The May poll of The Wall Street Journal showed that 51% of respondents adhere to this point of view, whereas in April it was about 44%, in March – only about 19%. Less is said about the coming recession in the US, this topic has become irrelevant.
I must say that the above figures very accurately outline the problem facing the Federal Reserve. Is it necessary to reduce the rate in the conditions of rapid economic growth and sluggish inflation? Perhaps a hint should be expected from the US and China talks.
If the deal is not reached and trade friction resumes with renewed strength, the dollar will receive support, but short-term. There is no need to be surprised. Later, the US currency will start losing ground due to expectations of monetary easing in the United States under the influence of growing international risks.
