The United States dollar managed to remain steady this Monday after data revealed a surprising strength in the US jobs market. Still, it was eventually restrained from going higher by worries regarding a potential escalation in the neverending trade war between the United States and China.
The index stood flat in mid-Asian trade, at 97.706, after last Friday’s rise of 0.3%, while the Euro traded at $1.10575 after it reached its one-week low of $1,10395, also on Friday.
Last month, the nonfarm payrolls in the United States increased by 266,000 jobs, which is by far the biggest gain in the past 10 months. Even more, the unemployment rate went to 3.5%, which is the lowest level in almost half a century.
Is the trade war finally ending?
As expected, these figures suggested that the Trump administration’s trade war with its Chinese counterpart, which took manufacturing into recession, is far from spilling over to the broader economy of the United States.
Nevertheless, investors think that things could change quickly as soon as the trade tensions escalate, especially if President Donald Trump will proceed with the planned tariffs on around $156 billion worth of products from China, starting with December 15.
Lately, the market has been functioning on the assumption that the above-mentioned tariffs, which currently cover in-demand products, like toys or smartphones, will be dropped or maybe postponed, considering October’s decision between the two governments to work on a new trade deal.
“Markets are sensing that both sides want to avoid a collapse of their negotiation, judging from various news headlines,” believes State Street’s chief of frex, Kazushige Kaida. “So the main scenario is for the dollar/yen to test mid-109 yen levels.”
On Friday, December 15, Larry Kudlow, economic adviser at the White House, confirmed that the deadline to impose new tariffs remains December December 15, adding that Donald Trump is optimistic regarding the direction of the talks with China.
Some good news regarding this would be welcomed by many, as China’s exports are shrinking for the fourth month in a row, underscoring all the pressures on manufacturers.
The sterling pound, close to reaching a new high
Trading at $1.3143, the pound was not far from $1.3166 this Thursday, which would’ve been a seven-month high. Against the euro, it also performed very well, hitting a 2-½-year high of 84.10 pence per euro.
One of the main reasons behind this is the expectations that Prime Minister Boris Johnson’s Conservative Party will obtain the majority in this Thursday’s upcoming election, thus ending a political paralysis, caused by Brexit.
“Markets now think the Tories will win. But if they fail to win an outright majority, that means essentially nothing is different from now and will be a fairly big shock for the market,” said MUFG Bank’s chief FX analyst, Minori Uchida.