Yesterday, President of the United States Donald Trump announced a new round of tariffs on Chinese products. The announcement shook the financial markets. On Wall Street, we have seen the collapse of indices, the price of oil has fallen the most for over four years, and the currency market has been witnessing a sharp strengthening of the yen and the Swiss franc.
Donald Trump announced that from September 1, 10 percent tariffs will be imposed for Chinese goods worth 300 billion dollars. This is an additional group of products that does not include goods worth $ 250 billion, for which a 25 percent tariffs already applies. Thus, the trade war has escalated, and this has had to affect the financial markets.
The yen strengthened in relation to the US dollar to the levels we last observed five weeks ago. This was due to the return of capital to safe havens. The Swiss franc has definitely strengthened as well and the CHF/PLN exchange rate has risen. The zloty in relation to the franc is the weakest since April 2017. The CHF/PLN exchange rate approaches PLN 3.94. The US dollar, of course, also reacted to Trump's announcement. Investors began selling American currency. The EUR/USD exchange rate increased from 1.1026 to 1.1090. On the commodity market, crude oil fell yesterday by over 7 percent, and gold went up at a rapid pace from 1,400 to almost USD 1,450 per ounce.
New duties on consumer goods may affect household spending, consumer confidence and the labor market. This, in turn, may prompt the Fed to introduce significant changes in the assessment of monetary policy prospects. Therefore, investors are almost sure that interest rates might be cut at the Fed's September meeting. It seems that the customs policy has become Trump's tool to influence the decisions of the Federal Reserve. President Trump issued a statement on new duties a day after the Fed's unsatisfactory decision.
Today's data from the US labor market can further warm up the markets. The publication on employment change, unemployment rate and average hourly earnings will be presented at 14:30.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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