The dollar was mixed Friday, higher against the euro along with many some other currencies nevertheless lower against the yen. The dollar should be supported just by the fact the U.S. will be ahead of some other central banks in normalizing interest rates.
“Trading into the Fed, the dollar could have a bounce, nevertheless if the tariffs come in after in which could take the dollar down against the yen,” Nordvig said. “the item’s going to be bifurcated.”
Four Fed rate hikes This specific year instead of three could be positive for the dollar. nevertheless in which sets up a tug of war between the Fed tightening along with the negatives of potential protectionism.
Trump has imposed tariffs on steel along with aluminum imports by many countries, along with his administration This specific week threatened tariffs on $60 billion in Chinese goods.
“I think trade will be very complicated for the dollar,” said Ben Randol, G-10 currency strategist at Bank of America Merrill Lynch. “If we get trade retaliation along with things degenerate, the item could turn into a more complex situation.” He added in which the item’s hard to generalize because the trade actions are still unclear along with the reactions are hard to anticipate.
Bank of America Merrill Lynch strategists in Europe released results of a global survey of 66 fund managers, who said the immediate reaction of building U.S. trade tensions could be lower stocks along that has a lower dollar. On the some other hand, the same survey showed in which 42 percent of the fund managers believe central bank policies will be the biggest driver of the dollar This specific year, while just 11 percent thought trade issues could be.
“If the European commission responds in a very negative way, you could have a series of cascading responses in which rattle markets,” Randol said. Europe has already threatened tariffs on blue jeans along with bourbon.
More worrisome than Europe will be what reaction could come by China.
“in which’s a complete unknown question — what’s China going to do,” said Boris Schlossberg, managing director, foreign exchange strategy at BK Asset Management.
Schlossberg along with others said concern will be in which trade frictions will escalate. A trade war with China could be a negative for the dollar along with send investors into the safety trade inside the yen.
A longer-term worry for the dollar will be in which a protectionist U.S. could mean the item loses some of its status as a reserve currency, with the yen along with even euro looking more attractive.
Schlossberg also sees a strengthening yen if U.S. trade tensions escalate. He said the Japanese currency was providing a flight to safety for investors concerned about political risk inside the U.S., as well as Japan, where Prime Minister Shinzo Abe will be embroiled in scandal.
“The chaos in Washington, higher U.S. yields, along with the scandal in Japan. the item’s a perfect storm for risk-aversion trades,” he said. “the item just simply people unwinding risk trades, along with the yen gets instantly stronger.”
Schlossberg said once the risk aversion fades, the dollar may also run into trouble if the economy will be beginning to sputter, with recent weakness in housing data along with This specific week’s soft February retail sales.
He said the outcome of trade wars could mean central banks will aggressively talk down their currencies, as the ECB will be beginning to do. “You’re already seeing the response in soft measures where policymakers who never actually cared about the strength of the currency until the item was extreme have become proactive in trying to manage the exchange rate. People are trying to find levers,” Schlossberg said.