On Monday the US dollar trades flat this after U.S. Vice President Mike Pence said last Saturday that the U.S. isn’t in a rush to end the trade war and won’t change course until China changes its ways. However, China’s President Xi Jinping said that implementing tariffs and breaking up supply chains is “short-sighted.” According to a different strategist, the upcoming G20 meeting between Xi and Trump will provide more certainty in the FX market, but a suspension of further tariffs in exchange for more negotiations is the most likely scenario. In general, the US dollar has been trending lower in the last week after several Fed officials had a less hawkish tone.
The equity market pullback does underscore the uncertain outlook for what the Fed will do when they meet on December 19, probably marking their fourth rate increase this year. According to The Wall Street Journal, Fed officials are divided over how many times the central bank will raise rates next year. Projections released after the Fed’s meeting in September showed officials are roughly equally split over whether the economy will require two, three, or four rate raises next year. This morning, the core durable goods orders (monthly) were at 0.1% when the forecast was 0.4%; this is causing negative pressure on the US dollar.
The US dollar index moved within a wide range of 0.86%, ending 0.68% higher in yesterday’s session. Yesterday was another negative day with US equities lower again (SPX -1.82%, Dow -2.21%, Nasdaq -1.7%). However, the story is different this morning: the US index is weaker due to US stocks looking poised to regain ground as market participants counterbalanced the late selloff.