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US Dollar Slips as Tariff Tensions and Recession Fears Mount

Another day and further losses for The US Dollar after President Donald Trump went ahead with his tariff hikes against China, therefore raising fears of a prolonged trade war ahead of a possible US recession. Yesterday saw Trump sign an order to go proceed forward with an additional 50% worth of tariffs against China, which in total bring accumulative tariffs to 104%. This has raised fears of a US economic downturn and has now led to speculation that The Federal Reserve will need to cut interest rates a lot more aggressively than initially thought.

Fed fund futures jumped early in the day suggesting around 111 basis points of cuts this year would take place, crucially up from 92 basis points just 24 hours prior. Fed fund futures is a tool used primarily by traders to hedge or bet on changes within the rate, which is a key metric for monetary policy decisions. One of the questions on many people’s lips will be why the Dollar is suffering the most from these tariffs on China. The contributing factor behind this is the fact the market feels there is a lack of immediate substitutes for some Chinese products, which will lead to further inflationary pressures as well as the chances of an imminent recession becoming greater.

The Euro has also gained momentum over the past few days as it has come to light that Germany’s Conservatives have reached a deal with the centre-left party (Social Democrats) to form a government and ease political pressure in the EU’s largest economy.

On the economic data front, it’s a very quiet day but we do have Thursday’s releases which bring US Inflation to the forefront. Inflation figures for March including Food and Energy is set to show a further drop-off to 2.6% which would again drive-up market bets for an aggressive stance towards interest rate cuts from The Federal Reserve. Aside from this, it still looks like the markets will be extremely volatile towards The US Dollar has markets start to digest the implications globally.

GBP/EUR 1.1620 GBP/USD 1.2813 GBP/AED 4.7092
GBP/AUD 2.1329 GBP/CHF 1.0800 GBP/CAD 1.8202
GBP/NZD 2.3050 EUR/USD 1.1017 GBP/ZAR 25.1946

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