The U.S. Dollar is suffering as markets believe that China will survive any tariffs in the short and long-term.
The world’s second largest economy will cut the average tariff rate that is charged on imports from most of its trading partners. At the moment, this seems to establish that China is capable of withstanding any threats its way while maintaining global lines of business flowing smoothly. The reprieve is being felt all across the board with the buck down an average of close to 1.0% against most counterparts. Greenback is now at a three-week low overall.
Good data on the other side of the Atlantic and doubt over the direction of trade talks are negative factors for the dollar’s value. A resolution to NAFTA is now expected to be delayed with Canadian officials still pushing for inclusion of their ideas. We see a tough end of the month for the buck and likely wild swings as the Fed and GDP hit the wire next week.
The Euro is trading at its best levels since July 10th despite disappointment being displayed at the Salzburg Summit. EU officials said that it looks like a Brexit deal is far from being done and could extend longer than ever expected. Furthermore, Euro should be subdued by concerns over Italy, but the shared currency is a beneficiary of the optimism back in equities after China’s plans to ease some trading pains by reducing costs. We think the currency is vulnerable to dips, but currently trade is depreciating the dollar’s image more.
Pound is trading around its best levels since July 10th. Indeed, the two majors are moving in tandem as their domestic woes look small compared to the larger picture of trade balance between the world’s biggest economies. Additionally, the U.K. is experiencing better-than-expected figures as Retail Sales surprised by not contracting in August. Month-over-month Sales excluding autos and fuel rose by 0.3% instead of falling by 0.2% as estimated. Brexit is still a dark cloud, but solid indicators such as Sales cannot go ignored.