Well, it’s official, the Trump Administration has slapped a 25% tariff on 818 Chinese goods, with a total value of up to $50 billion. This action comes on top of the recent decision to impose steel and aluminum tariffs on many U.S. allies, including Canada, Mexico, and the European Union.
The U.S. dollar gained against all major pairs this week. A hawkish Fed and a dovish European Central Bank (ECB) gave the edge to the American currency. U.S. President Donald Trump scored diplomacy points in Singapore by meeting with North Korean leader Kim. Trade war fears were once again at the forefront as the Trump administration announced new tariffs on Chinese goods on Friday. Crude oil prices plunged as supply might be on the rise with heavy anticipation on the Organization of the Petroleum Exporting Countries meeting on Friday.
The euro/British pound (EUR/GBP) currency pair could be on the verge of a breakdown after the European Central Bank’s policy decision on Thursday. While the central bank’s plan to end quantitative easing programme at the end of the year was a hawkish development, investors had already priced in that decision.
Although the European Central Bank is widely expected to keep monetary policy unchanged in June, investors are likely to be more concerned with the latest economic growth and inflation forecasts. Expectations remain somewhat elevated over the ECB potentially signaling an end to (quantitive easing) QE at the meeting. While hawkish comments from ECB officials and accelerating inflation have fuelled speculation over QE coming to an end, this could be a classic case where markets may be setting themselves up for disappointment.
Gold faces an important few days as three major central banks announce their respective policy decisions. All bar one is expected to make a rate change and that’s the Federal Reserve today. According to the to the CME’s FedWatch tool the probability of a 25 basis point rate increase is 96%, which means it is more or less already priced in. That may help explain why the dollar has stopped going up since the end of May.
With a rate hike in June considered a done deal, investors may be more concerned with the economic projections and press conference with Fed Chair, Jerome Powell. Markets are poised to closely scrutinize the Fed’s monetary policy statement for clues on how fast the Fed may raise interest rates during the second half of this year.
The jam-packed calendars for economic data and political events mean it is going to be a very busy week in the financial markets, perhaps the busiest of the year so far. This implies that the focus will be short-term with the longer-term themes likely to take a back seat. But the busy week has started quite badly for the British pound/U.S. dollar (GBP/USD) after the release of some poor UK economic data earlier today.
Ahead of next week’s major central bank meetings and key data releases, the market’s focus has turned to trade tensions as the G7 meetings get underway in Canada and it looks like U.S. President Donald Trump is taking on the whole world. While leaders of the “G7-1” are showing great unity, Trump continues to isolate himself by demanding “fair” trade agreements especially with Canada and the European Union.
Ahead of next week’s major central bank meetings and key data releases, there have been some interesting moves in the markets with the euro/U.S. dollar currency pair in particular showing relative strength. Although the Federal Reserve is almost certain to raise interest rates next week, it is the European Central Bank which all of a sudden is looking to be the more anticipated meeting.
Investors should buckle up for a potential showdown as trade is expected to be a major talking point throughout the summit. With escalating trade tensions seen as a significant threat to global economic growth, this could be a G7 meeting like no other.