As the US dollar continued its downward trend that began on Friday and added more losses on Monday, investors are now expecting moves towards rate hikes at the upcoming Fed meetings. This comes in particular amid hints from Federal Reserve Vice Chairman Richard Clareda that interest rates will be near a neutral level due to the global economic slowdown. On a separate note, Dallas Fed Chief Robert Kaplan said there was a slowdown in both Europe and China.
Despite optimistic markets and investors’ expectations that the Federal Reserve may move to raise interest rates at its next meeting in December, Fed officials’ comments suggest that tightening policy could be stopped sooner rather than later.
As for the major currency pairs, the British Pound was up against the US Dollar by 0.19%, with GBP / USD trading at $1.2856 per pound. This comes after a wave of losses suffered by the pound last week because of the turmoil of the Brexit talks. There are many voices calling for the resignation of British Prime Minister Theresa May, and it is not certain that the British Prime Minister will be able to pass the Brexit deal through the British Parliament.
The euro also benefitted as the dollar fell, reaching its highest level since Nov. 7 with the EUR / USD trading at $1.1452 per euro. As for the Japanese yen, which is considered a safe haven for investors, demand has fallen in light of market fears of trade tensions between the United States and China.
Last Friday, US President Donald Trump said in a meeting with a group of reporters that the United States may not be charging customs duties on more Chinese goods after China sent a list of measures it would be willing to take to help resolve the trade dispute between the world’s two largest economies. But Trump’s assurances were blocked by Vice President Mike Pence last Saturday, when he insisted the United States would not back down from its trade dispute with China, and perhaps even double the tariffs unless Beijing met US demands. Pence’s comments reduced hopes of tangible progress between Trump and Chinese President Xi Jinping on the sidelines of the G20 meeting scheduled for the end of the month.
US tariffs on Chinese goods worth $200 billion are expected to increase to 25% from 10% at the beginning of January.