Currency Markets Watch with Concern as Tariffs Kick In

President of the United States Donald Trump confirmed on Thursday evening that he would be pressing ahead with the imposition of tariffs against China – and these are kicking in today.

So far, only small effects on the forex markets have been noted. Both the US dollar and the Chinese yuan experienced small declines of 0.1%, with the dollar dropping to 94.30. With Chinese authorities confident that the impact of the tariffs will be at best negligible and at worst manageable, cautious optimism appears to be prevailing. The Chinese Central Bank, for example, said that it expected to see only a 0.2% effect on the country’s gross domestic product (GDP). This announcement is likely to have contributed to the relative calm in the markets.

To some extent, the markets have taken advantage of the long run-up to the tariff imposition by accounting for it in advance. However, although markets have priced it in, it’s possible that there will be some unforeseen consequences, especially in terms of political and diplomatic machinations. It was reported this week, for example, that representatives of the Chinese government had been applying pressure on governments in Europe to come out and publicly condemn the US government over the tariff decision. In the event that this does occur in the coming days or weeks, the markets may respond with even more caution than has already been shown.

While the impact of the tariffs is likely to dominate the day, forex traders will also have their eye on activity in other parts of the world. In Canada, a whole host of noteworthy data releases are scheduled for today – many of which could have a significant impact on the value of the Canadian dollar. Data on Canadian exports, which sat at a total value of $48.56bn during the last release, is likely to prove important.

In addition to this data, the impact of the potential impending trade war may also play into the market’s perception of Canadian export performance, while recent moves by Trump to encourage Saudi Arabia to raise oil production levels, which would cause increased competition for Canada, will also be on traders’ minds. Canadian unemployment statistics are also released today, a move which is also likely to play into currency market performance.

In the UK, Prime Minister Theresa May’s Cabinet is meeting for crunch talks on the government’s Brexit strategy. With some ministers said to be displeased with the Prime Minister’s approach, confidence in the pound may look shaky. On the plus side for the pound, the UK’s data release calendar is not busy today and other than a minor house price indicator release, there are no significant scheduled market events.

Despite a difficult start earlier this week after political problems for Angela Merkel’s government in Germany, the Euro has performed relatively well towards the end of the week. On Thursday, it rose to its highest point in almost a month after data on industrial orders in Germany proved positive.