When the trade war between the United States and the Middle Kingdom was just beginning, there was an opinion that the head of the White House, Donald Trump, was a supporter of free trade. Say, he raises tariffs only so that his competitors cut them and then he does it himself. But, as time has shown, things have turned out differently. At the end of September, rumors about Chinese companies’ delistings on US exchanges are circulating. g on the market. Although the US Treasury has already stated that it has not yet considered such measures, however, as you know, there is no smoke without fire. Given that Beijing is not afraid of duties, Washington could transfer “hostilities” to financial markets.
While the United States is looking for ways to bite its rival more painfully, its economy is showing signs of cooling. In August, the index of expenditures on personal consumption grew at the slowest pace since January. In annual terms, the indicator increased by 1.44% and is still far from the 2% target of the Federal Reserve. Inflation is not accelerating even against the backdrop of the most rapid increase in average wages in June-August over the past ten years. Last month, consumer spending growth slowed from 0.5% in July to 0.1%. Therefore, the Capital Economics research company lowered its forecast for the US GDP for the third quarter from 2 to 1.5%. Obviously, the US economy slows down under the influence of headwinds, which forces the Fed to soften monetary policy for preventive purposes.
A decrease in GDP growth rates and the expectation of monetary expansion are “bearish” factors for any currency, but the greenback is in no hurry to get cheaper. The revaluation of the dollar is primarily due to the weakness of its main competitors because the European and Chinese economies look much worse than the American one.
The main question is who will be able to cope with difficulties faster. Obviously, monetary policy alone is clearly not enough. According to the president of the Federal Reserve Bank of Philadelphia, Patrick Harker, the American Central Bank can create conditions for economic growth, but the trends in this growth are determined by fiscal policy. After the tax reform, the United States seems to have exhausted its capabilities in this direction, but Germany has more than enough of them. However, it is not yet clear whether Berlin will want to respond to the calls of the ECB head Mario Draghi.
The US economy is just beginning to react to the negative consequences of the trade wars, while the West and Germany are likely to have hit the bottom. In September, for example, business activity in China’s manufacturing sector grew at its best since February 2018.
Reports on purchasing managers’ indexes from ISM and the American labor market are due to be released this week, which will give a hint about the sensitivity of the United States to headwinds. In the case of the release of weak data, conversations about the resuscitation of QE from the Fed may intensify. According to Bloomberg experts, the US Central Bank must buy government bonds for $ 200-500 billion in order to stabilize the money market. Thus, despite the generally unsuccessful third quarter, the EUR/USD bulls do not intend to give up and are in no hurry to throw a white flag. Their main task now is to cling to the support of 1.0925-1.093.