Without meeting a rebuff from North America and Europe, Donald Trump decided to take on Asia


Tolerant Europe is keeping silent for a while, will China do the same? The EU threats to respond to the import duties on steel and aluminum, introduced in the USA, seem to be hollow, although, 90% out of 71 Reuters experts believe that Donald Trump’s protectionism will trigger  global trade war. OECD continues doubting that, rising its forecast for the global GDP growth in 2018 from 3.7% up to 3.9%, however, the more you have, the more you want. Without meeting a rebuff from North America and Europe, Donald Trump decided to take on China. And that is a completely different matter.


OECD forecasts

Source: Financial Times.


Reuters, referring to the source in the White House, wished to be anonymous, reports that Washington is going to impose new duties on import goods from China, amounting to about $60 billion.

In 2017, the U.S. negative balance of foreign trade with China was $375 billion. Moreover, China is one of the largest holders of U.S. bonds in the amount of $1.18 trillion, which is about 44% of its foreign exchange reserves. Beijing have fired a warning shot, spreading the rumours about bonds sales, which surged their yields and knocked the greenback down at the same time. The USA is facing a very strong opponent, and it is a big question, whether it will follow Europe and express tolerance.


Dynamics of volumes and proportion of U.S. Treasuries in China’s foreign exchange reserves

Source: Financial Times.


The USD index was put a short-term pressure on by the U.S. weak inflation statistics and the secretary of state Rex Tillerson firing by the U.S. president. Consumer prices in February slowed down from 0.5% to 0.2% M-o-M, and on a year-on-year basis, the index was lower than Wall Street Journal experts had expected.


Seasonal dynamics of the U.S. inflation

Source: Wall Street Journal.


The greenback didn’t benefited from the secretary of state firing as well. Political factor can put a pressure on any currency, though, in this particular case, it will be short-term.


In general, the dollar is caught between hammer and anvil. On the one hand, it can be supported by the Fed aggressive monetary restriction. On the other hand, the danger of the global trade war, associated with U.S. Treasuries sales, supports the restoring of EUR/USD uptrend. Anyway, as long as the quotes are below 1.247, bears shouldn’t panic.



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Dollar: the More You Have, the More You Want

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